Brazil to woo big oil by offering 30% of Libra’s profits

Big Reserves

Petrobras, as the world’s biggest producer in waters deeper than 1,000 feet is known, will operate the project and must compete as a bidder to get more than the 30% it automatically gets by law. Other competitors can form groups or bid individually for the remaining 70% on Oct. 22.

Petrobras fell 0.6% to 18.69 reais at 10:32 a.m. in Sao Paulo. The stock is down 4.4% this year, less than the 17% drop in Brazil’s benchmark index.

“You are actually buying into an actual, real physical asset which does have substantial reserves of oil,” Ruaraidh Montgomery, a senior analyst at oil and gas researcher Wood Mackenzie, said by phone from Houston. “A government take of 70% would be not unreasonable by any means.”

Brazil’s government will determine a signing bonus for the project and the competitors will win by pledging the largest amount of so-called profit barrels to the government.

Individual wells at Libra will pump as much as 30,000 barrels a day, in line with the most productive in Brazil, she said.

The regulator, known as ANP, doubled the reserves estimates at Libra to 8 to 12 billion barrels on May 23 after CGG Veritas, a geophysical services company, conducted a study of the first exploration well. ANP encountered a layer of oil 326 meters deep at the well and did imaging of the surrounding area. The previous estimate was 5 billion barrels.

Angola’s Take

Angola, which also produces in deep waters of the Atlantic, gets about a 70% take from oil projects, said Greg Priddy, an oil analyst at political consulting firm Eurasia Group. While companies in the U.S. Gulf of Mexico pay less than 50%, the prospects are smaller than in Brazil and are sold without previous drilling, he said.

“It’s certainly not a level people are going to be happy with, but its not prohibitive,” Priddy said by phone from Washington. “It’s not something I would see on the face of it as non-competitive.”

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