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Cablegate: Brazil Oil & Gas - Bid Round 10

VZCZCXRO9997
RR RUEHRG
DE RUEHRI #0337 3531903
ZNR UUUUU ZZH
R 181903Z DEC 08
FM AMCONSUL RIO DE JANEIRO
TO RUEHC/SECSTATE WASHDC 4718
INFO RUEHBR/AMEMBASSY BRASILIA 1045
RUEHSO/AMCONSUL SAO PAULO 5215
RUEHRG/AMCONSUL RECIFE 3482
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS RIO DE JANEIRO 000337

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC, EB/ESC

E.O. 12958: N/A
TAGS: ENRG EPET EINV BR
SUBJECT: BRAZIL OIL & GAS - BID ROUND 10

REF: Rio de Janeiro 235

1. Summary. On December 18, 2008, Brazil held its 10th Bid Round
to license oil and gas exploration rights. Unlike past auctions,
Bid Round 10 only offered onshore blocks (offshore opportunities are
on hold until the government decides how it wants to handle the
"pre-salt" region). Results of the auction were modest with only 54
of the 130 offered blocks being sold. As expected, Petrobras
performed well, winning 27 of the 28 blocks on which it bid. A
number of small to medium sized Brazilian firms also picked up
several blocks. Five U.S. firms registered for the auction,
including one company which is not yet active in Brazil, but none of
them submitted any bids. In total, the auction raised approximately
USD 39 million in signing bonuses (in addition to a set percentage
of future production, if any). End Summary.

2. Bid Round 10 is significant because it is the first such auction
in Brazil since November 2007, when the government suspended all oil
and gas licensing after the discovery of potentially massive
reserves in the ultra-deepwater "pre-salt" area off of Brazil's
southeastern coast. Unlike previous bid rounds, held since 1999 and
always with a major offer in offshore areas, Bid Round 10
exclusively offered onshore blocks. On one hand, that any auction
took place is good news as it signals the government's interest in
maintaining a transparent, competitive licensing regime which is
open to foreign companies. On the other hand, the current offering
of only onshore blocks means that companies may have to wait years
before attractive offshore blocks, including pre-salt, are
auctioned. Brazil currently produces only around 11 percent of its
oil and 35 percent of its natural gas onshore.

4. Highlights of the auction's results follows below:

Number of Blocks Offered - 130

Number of Blocks Purchased - 54

Number of Blocks Not Receiving Any Bids - 76

Total Signing Bonuses Raised - USD 38,872,576

Total Minimum Exploratory Program (PME) Work Units Committed -
128,707

5. Forty-three companies, mostly Brazilian, registered for the
auction. Five U.S. firms registered but ultimately did not submit
any bids: Anardarko, Devon, Exxon, Hess, and Laco (Note: Laco does
not currently operate in Brazil). Chevron and El Paso, which also
operate in Brazil, did not participate in the auction. The only
foreign firms which purchased oil and gas rights in Bid Round 10 are
Petrogal (Portugal), Shell (United Kingdom), STR (Argentina), and
Synergy (Panama).

6. Meanwhile, the petroleum workers union has been staging several
protests against the auction in Rio de Janeiro, claiming that such
auctions allow foreigners to take Brazil's rightful oil wealth and
that Petrobras should revert to being the national oil company. In
addition to demonstrations at Petrobras and the oil regulatory
agency, union workers mounted a banner on Rio's famed Sugarloaf
Mountain which read "The Oil Is Ours".

MARTINEZ

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