Latin Finance - March/April 2012 - 47

Brazil oil sector

Crude Rush
by Raúl Gallegos

ust five years ago few would have guessed that Brazil would one day be considered a rising oil producer, courted by international oil companies including the energythirsty Chinese. These days, every major energy company is eager to secure oil-rich real estate in Brazil, preferably in the offshore fields that catapulted the South American country to energy stardom. The problem is that access is tricky. Pending a new fiscal framework for oil, Brazil has put new offshore licenses on hold, leaving interested companies no choice but to buy their way in. The result has been a frenzy of mergers and acquisitions that have lately turned Brazil into one of the hottest spots for dealmaking in the energy industry. Buyers – especially the Chinese – are paying top dollar for reserves that still lie deep underwater and then deeper still underground and require massive investments to get Oil space for sale, but at a price out. This fascination with deep-water oil, combined with the cash needs of In another benchmark deal a year earlier in October 2010, the lucky few companies exploring prized fields, promises to Sinopec bought a 40% share in the Brazilian operations of yield more and more expensive Brazilian oil deals in the months Spain’s Repsol for $7.1 billion. Credit Suisse reckons that the ahead. transactions amounted to $4.3 per barrel of oil equivalent (boe) “Every company of note has been looking at Brazil very for the Galp deal and $5.3 per boe for Repsol, the highest levels closely,” says Ruaraidh Montgomery, an offshore oil analyst for paid so far for Brazilian reserves based on available information. energy consultancy Wood Mackenzie. “The government has Observers attribute the lower price per barrel that Sinopec paid drawn a ring fence around the acreage in the Espírito Santo, for Galp’s assets to the Portuguese company’s decision to sell no Campos and Santos basins.” The government’s decision has more than a 30% stake at a time of financial duress. further whetted company appetite for the areas known as “preThe rush for Brazilian crude began in late 2007 when salt,” in reference to the geologic formations that trap oil under Petroleo Brasileiro, Petrobras, and its partners – the BG Group 2000-meter layers of salt. and Galp – announced a historic oil find deep underwater in a Two transactions have so far become the standard by which field called Tupi (now renamed Lula) that was estimated to hold all other deals are measured in Brazil. The most recent one took at least 5 billion barrels of recoverable oil, the largest discovery place last November, when the China Petroleum and Chemical in the Western Hemisphere in decades. The field lay in a pre-salt Corporation, better known as Sinopec, paid $4.8 billion in formation found deep underwater far along the Brazilian coast. exchange for a 30% stake in Petrogal Brazil, a unit of Portugal’s Following the discovery, Brazil’s government pulled out 41 Galp Energia, which holds 21 projects in the country’s oil sector. blocks from the ninth oil and gas licensing round in late 2007.

Major oil companies are falling over themselves for a piece of Brazil’s oil-rich future. But with new offshore licenses on hold, getting assets is neither cheap nor easy.

March/April 2012

LatinFinance 47

Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012