Petroleo Brasileiro Petrobras SA (PBR), Seadrill Ltd (SDRL), Transocean LTD (RIG): Is the Oil Business in Brazil About to Blow Up?

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Petroleo Brasileiro Petrobras SA (NYSE:PBR)Activity in offshore oil drilling has been red hot lately. The U.S. government timed its most recent Gulf of Mexico auction almost perfectly, as it came right on the heels of Anadarko Petroleum Corporation (NYSE:APC)‘s and Chevron Corporation (NYSE:CVX)‘s announcements that the two companies had hit major paydirt at a couple of its rigs. The U.S. isn’t the only country finding sucess offshore, either. This past week, Brazil completed its first oil and gas lease auction in five years, and apparently the long wait had exploration and production companies drooling. The country pulled in its largest auction revenue ever, about 2.88 billion Brazilian reais ($1.4 billion).

Let’s look at who were some of the big winners in the Brazil auction and why offshore in Brazil may be the new hot commodity for oil companies.

And the winner is …
It all depends on your definition of “winning: to determine who came out on top of this auction. If your definition is most blocks won, then Petroleo Brasileiro Petrobras SA (NYSE:PBR) took that prize running away. The company spent $268 million for rights on 35 blocks. The next closest in terms of bids won was OGX, which secured 13 blocks in the entire auction. It shouldn’t come as a surprise to anyone that Petrobras was the most active in this auction. Not only is Petroleo Brasileiro Petrobras SA (NYSE:PBR) Brazil’s largest oil company, but it also just recently completed an $11 billion bond issuance, the largest corporate bond sale from an emerging market ever. Some of that money was probably pre-planned for both this auction and the next Brazilian auction to happen in October. This move will further secure Petrobras’ position as the largest oil producer in the country.

There is another way to measure the winner, and that is who won the bid for the most attractive asset. That prize goes to a group led by France’s TOTAL S.A. (NYSE:TOT), which, with its partners BP plc (NYSE:BP) and (surprise, surprise) Petroleo Brasileiro Petrobras SA (NYSE:PBR), won the bid for a 350-square-mile block at the mouth of the Amazon River. The group’s winning bid for the region came in at $172 million. It was the most paid for any Brazilian block since 2006. Magda Chambriard, the head of Brazil’s national petroleum agency, has gone on record saying this individual block has the potential to produce up to 150,000 barrels per day.

Overall, though, Brazil was probably the largest winner in this auction. The country secured bids for 142 of its 289 blocks up for sale. To put that in perspective, the most recent Gulf of Mexico auction secured bids for only 400 for the 7,300 blocks up for sale. Also, according to the Financial Times, many of these blocks sold for premiums much higher than the minimum bid price from the government. This should be a promising sign for the emerging market, as it didn’t put up its most lucrative asset — the pre-salt formation — up for auction. However, the country will auction off the pre-salt formation for the very first time in October.


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