Brazil Lets In Big Oil Firms a Decade After Keeping Them Out
By Paul Kiernan
RIO DE JANEIRO -- Brazil will on Wednesday begin reversing what industry officials say was a costly and ultimately disastrous decision a decade ago: setting aside billions of barrels from the Western Hemisphere's largest oil discovery in 30 years for its state-run oil firm at a time when deep-pocketed foreign companies were clamoring to invest.
Brazil removed key acreage from a 2007 auction that could have yielded $100 billion in signing bonuses plus hundreds of billions more in spending commitments when the price of oil was near record highs, according to several former executives at Western oil companies.
Now, Brazil may generate just a fraction of what it could have as it looks to exploit its oil potential and revive its economy.
"We are trying to put the country back on track," Energy Minister Fernando Coelho told an oil conference in Houston earlier this year.
Wednesday's auction is the first of nine bidding rounds planned through 2019 for areas that could hold roughly 10 billion barrels of recoverable oil, or enough to supply the U.S. for almost a year and a half.
Included in upcoming auctions are areas that Brazil had originally intended to lease out in 2007, shortly after Petróleo Brasileiro SA, or Petrobras, discovered huge reservoirs of crude in an ultra-deep layer known as the sub-salt, off the southeast coast.
At the time, the U.S. shale boom was still a dream, experts were worried that global production might peak and oil prices were en route to an all-time high. The size and timing of the find appeared so fortuitous, then-President Luiz Inácio Lula da Silva said God must be Brazilian.
Foreign oil companies were desperate for new reserves. "A lot of people were very excited about it," recalled Shafe Alexander, BP's country manager in Brazil.