Brazil’s pre-salt oil auction begins after injunction delay

By Simon Webb and Marta Nogueira

RIO DE JANEIRO (Reuters) – Brazil on Friday inaugurated a long-awaited auction for blocks in its prolific pre-salt offshore oil region after the government successfully appealed a federal judge’s injunction against the process.

The eyes of the global oil industry are on the Latin American country, with senior executives from the world’s biggest energy companies in Rio de Janeiro to bid.

The leftist Workers Party, which opposes government reforms in the energy sector, sought the suspension.

“There are great expectations around this auction,” Mario Faria, Brazil country manager for top oil services provider Schlumberger (N:), said before the suspension was lifted.

Brazil is slated to auction eight blocks with more than 12 billion barrels of estimated oil reserves. Oil companies will be allowed to operate fields for the first time in a region known as the pre-salt, where hydrocarbons are trapped under thousands of feet of salt beneath the ocean floor of Brazil’s deep Atlantic waters.

President Michel Temer’s government has enacted reforms to make the energy sector more attractive to major oil companies, removing strict local content rules and extending a preferential tax regime to court big money.

He has, however, faced opposition from the left. Indigenous groups and environmentalists protested against an auction in September for blocks near the pre-salt region.

“We know that in Brazil these things happen … Above all, it is a political act,” said Pedro Parente, chief executive of state-run oil producer Petroleo Brasileiro (SA:), referring to the nearly three-hour delay.

The quality of reserves and the reforms have made Brazil an important target for oil majors, even though they have had less appetite for capital-intensive mega projects since crude prices crashed in 2014.

Brazil has big hopes for the volume of oil the companies can pump from the blocks. Brazilian oil output could double to more than 5 million barrels per day (bpd) by 2027, compared with the 2.6 million bpd produced in August, regulator ANP said on Thursday.

Shell (L:) will participate in the auction and has said it is confident it can pump from the pre-salt fields at below $40 a barrel.

Exxon Mobil (N:) is also expected to bid, oil industry sources said. The U.S. producer set the stage in September, when it won 10 blocks near the pre-salt in another auction.

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