Sao Francisco Basin Attracts Most Interest in Brazil's Round 7 So Far

Brazilian and foreign companies competed aggressively for blocks in the inland São Francisco river basin in the most competitive round so far in Brazil's seventh exploration licensing round, national hydrocarbons regulator ANP announced.

ANP awarded 39 of the 43 blocks in the basin to nine companies raising 11.4mn reais (US$5.1mn) in licensing fees, ANP said in a statement.

The strongest group was made up of a joint venture between Brazil's federal oil company Petrobras (NYSE: PBR) and British gas company BG Group, although it was only awarded six blocks. Petrobras and BG Group offered fees ranging from 790,000-5.7mn reais per block, a sum well above the 10,000-real minimum entrance fee.

Argentine oil company Oil M&S was awarded the largest number of blocks at 23, while Brazilian geophysics research firm Geobras received eight.

A consortium of Brazilian engineering company Orteng and Minas Gerais state government development agency Codemig took one block as did Brazilian transport logistics company Tarmar.

The bidding took over 90 minutes on Monday evening, by far the longest in the first day of the tender. "We have information there are important gas reserves in the basin," Oil M&S' new business director Raúl Chicala told BNamericas. "We were looking at Brazil and realized that it's future is natural gas."

Oil M&S has operated since 1907 in the Golfo San Jorge, where it produces 10,000 barrels a day of oil. The company and its unnamed Brazilian partner will now carry out geological studies, including airborne and satellite mapping of the region, and prepare to drill in 2007, Chicala said.

The São Francisco basin did not attract much attention before this licensing round because of unsuccessful drilling by Petrobras several decades ago.

The unexpected attraction to the region is a possible combination of its closeness to the large industrial hubs of Minas Gerais, São Paulo and Rio do Janeiro states and the low entrance fee of 10,000 reais charged by the ANP.

"The closeness to the market is attractive," said Chicala. All of Oil M&S' blocks were obtained for the minimum fee.

The other big winner was Geobras, a 10-year-old company formed by a group of geologists that has been investigating the region for several years. "We have been trying to obtain concessions in the region for a long time, but conditions imposed by the ANP were too harsh until now," Geobras commercial director Luis Andrade told reporters.

The company has done geophysical studies and carries out geological and geophysical research for mining companies such as Brazilian mining and metals conglomerate CVRD and for Italian oil company Agip, among others. Its specialization is researching reserves of manganese, bauxite and gold. "We don't know if there is oil there but there is a lot of gas there, in some places it sprouts up at the surface," Andrade said.

"Petrobras never drilled to the right depth." Geobras has equity of US$13mn but says it has cards up its sleeves. "If we confirm large reserves, we have a foreign investor ready to pump US$10bn over 10 years in the region in equipment and know-how," he said, declining to give further details. Geobras president Romeu César Torres called the group CBC, made up of Chinese, Brazilian and Canadian interests.

Geobras was more aggressive than Oil M&S, offering fees that ranged from 50,000-1mn reais, outbidding Petrobras in two blocks. Petrobras' Paulo Mendonça declined to comment on his company's strategy for the region. "There is gas there," he told reporters.

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