Brazil Govt Likely to Cancel 8th Round Oil Auction

RIO DE JANEIRO (Dow Jones Newswires), Dec. 16, 2008

The Brazilian government likely will cancel the suspended eighth-round auction of oil and natural concessions, the O Estado de Sao Paulo newspaper reported in Tuesday's edition.

According to the report, the government likely will transfer the blocks up for bids in the eighth-round auction to a new regulatory model currently under discussion. Possible changes to Brazil's oil law likely will give the government a direct stake in exploration and production blocks.

An unnamed source close to the situation told the newspaper that the government has no interest in restarting the auction under the current concession rules. The government wants to take a mulligan on the eighth round, with concessions held to the new regulatory framework, the report said.

The eighth-round auction was suspended in November 2006 after a local court granted an injunction halting the auction. Before the auction was halted, 38 of the 284 oil and gas exploration and production blocks up for bid were auctioned off.

While government officials have maintained that previous contracts would be honored, the winning eighth-round bids can't be considered official until a contract is signed with Brazil's National Petroleum Agency, or ANP.

Furthermore, the contracts can't be signed until the eighth round is fully completed and a signing bonus paid by the winning bidders.

Brazilian state-run energy giant Petroleo Brasileiro, or Petrobras, submitted winning bids on 20 of the 38 auctioned blocks. The winning bids represented a signing bonus of 588 million Brazilian reals ($247 million).

The eighth round auction included blocks in Brazil's promising subsalt region, where massive oil reserves have been discovered.  

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