Suspension of Brazil's Oil and Gas Block Auction Upheld

RIO DE JANEIRO, Nov 29, 2006 (Dow Jones Newswires)

Brazil's National Petroleum Agency, or ANP, Wednesday said it didn't succeed in overturning the suspension of Brazil's annual oil and gas exploration and production auction and, as a result, had to declare the auction ended.

A federal judge in Brasilia on Tuesday afternoon issued an injunction suspending the auction after a congresswoman of the governing Workers Party, or PT, had challenged a rule of the auction that limits the number of bids each company is allowed to place at the auction.

The ANP late Tuesday decided to stop the auction for the day after it had already awarded 38 offshore and onshore exploration and production blocks, worth 588 million reals ($270 million). The ANP Tuesday night and Wednesday morning in vain tried to overturn the injunction in order to continue it on Wednesday morning.

The ANP thinks it may still be able to overturn the injunction, but nevertheless ended the auction completely, since it wasn't able to give participating companies enough planning stability.

"We regret this. We think the (judicial) process is incorrect," ANP President Haroldo Lima said. "We know some companies have prepared themselves months for this."

Lima said the ANP made the decision to completely end the auction after talking to Brazil's Mines and Energy Minister Silas Rondeau and energy firms.

Companies winning bids have made commitments to invest about BRL600 million in the new exploration areas in the coming six years, Lima said.

Brazil's state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, as well as foreign oil firms such as Italian oil company Eni SpA (ENI.MI), made winning bids for promising offshore oil blocks worth hundreds of millions of dollars Tuesday morning.

Eni had submitted the most expensive winning bid for one Santos Basin area worth BRL307 million.

It was unclear whether the awarded licenses will continue to be valid after the suspension of the auction.

"In our opinion, everything that was awarded until the time of the suspension, is valid," Lima said, adding that this was also Rondeau's opinion.

But "everything can be challenged, even the movement of planets," Lima said.

Lima added that so far he was not aware of any challenge in courts against the validity of the licenses awarded on Tuesday. He said the ANP will fight to ensure that the licenses awarded so far will be recognized as valid.

Brazil's oil block auctions in previous years also were challenged in courts, but the ANP always had managed to overturn any judicial action against them.

However, court cases against earlier auctions had directly challenged Brazil's 1997 opening of the oil sector on constitutional grounds in order to re-establish Petrobras' monopoly in the sector. Brazil's Supreme Court, however, ruled that the opening of the sector was constitutional.

Lima said the congresswoman challenging the auction Tuesday only used the bid limit rule as a pretext, but in reality wanted to stop the auction altogether as she belonged to a minority of congressmen against the opening of the oil sector.

The ANP in coming days will already start to prepare a new oil and gas block licensing auction, which could take place around midyear 2007, Lima said.

Lima defended the bid limit rule, but said the ANP will have internal discussions to see whether or not to keep the rule.

Copyright (c) 2006 Dow Jones & Company, Inc.

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