After December auction, government signs pre-salt oil contracts

Brazil’s federal government on Wednesday signed exploration contracts for four blocks of the country’s pre-salt oil fields. Located off the coast of the southeastern states of Rio de Janeiro and São Paulo, the blocks foresee a minimum investment of BRL 1.44 billion (USD 300 million).

The blocks in question were auctioned off at the end of last year by the National Oil Agency, in what was the first offer of pre-salt fields under the so-called “shared production” model, by which a portion of the oil and gas extracted is transferred to the federal government.

The auction was also the first time pre-salt oil fields had been sold off in a “standing offer” format, in which tenders are only organized once there is sufficient interest from private firms.

Having sparked economic prosperity following their discovery in the 2000s, Brazil’s pre-salt oil fields are becoming less and less profitable over time. Experts say that the remaining blocks do not have the same exploration potential and are riskier to drill, resulting in lower bids from oil companies.

State-controlled oil company Petrobras will operate three of the four blocks auctioned off. It is the full owner of one, while it controls another two in consortiums alongside foreign firms.

As the pre-salt fields lose their importance, Petrobras has its eyes firmly fixed on exploring the Equatorial Margin, one of the world’s most appealing new oil frontiers which has been compared to the pre-salt discoveries of the 2000s.

The problem, however, is that the Equatorial Margin partly consists of reserves located near the Amazon estuary in Brazil’s North region. Environmentalists, including Environmental Minister Marina Silva, fiercely oppose plans to drill there.

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