Exxon bids on oil blocks in Brazil

Exxon Mobil Corp (NYSE: XOM) is ready to bid on new blocks in Brazil's deep-sea oil fields on Friday, a focus area for growing its oil and gas production, according to people familiar with the matter.

Any bid would be the company's first major investment since it decided to resume spending in 2020 after a historic annual loss of $ 22.4 billion. More than one consortium could emerge from the auction as 11 companies have registered to participate. Other filing companies include Royal Dutch Shell (LON: RDSa), TotalEnergies, and Chevron (NYSE: CVX).

If the two fields on offer are accepted, they could increase Brazilian production by 12% and generate investments of nearly $ 40 billion over the next decade, the Brazilian Ministry of Energy said on Monday. State-owned oil company Petroleo Brasileiro, which made the discoveries, would receive $ 6.2 billion for previous investments.

Exxon only held talks with Petrobras last week about a possible partnership to develop Sepia and Atapu, with Petrobras as the operator and Exxon as a major shareholder, the people said. A subsidiary of Portugal's Galp Energia, Petrogal, is also considering a minority stake in a three-way deal, the people said.

Exxon declined to comment on the basis of its business strategy. Petrobras and Petrogal made no comment.

A new partnership between Petrogal and Petrobras would expand existing relationships at the nearby Sepia East oil field, said Marcelo De Assis, head of Latin America upstream research at consultancy Wood Mackenzie.

People familiar with the negotiations said a second consortium without the involvement of Petrobras could also apply for the Sepia oil field.

Shell, TotalEnergies and Petrogal would be "the top candidates" for the smaller Atapu block because they have already developed an area adjacent to Petrobras, Assis said.

SECOND BITE AT THE AUCTION

This is the second time Septia and Atupu have been offered. They were put up for sale in an auction in 2019. Exxon was ready to bid in partnership with Petrobras for a 45% stake in the main block, called Buzios, said people, who refused to be named because the information is not public.

Today Buzios produces about the same amount as Venezuela. Exxon got out of this auction because the amount of spending required was uncertain, so Petrobras had to make the billions in investments, the people said.

The Exxon spokesman declined to comment on the 2019 auction.

This time around, Brazil cut royalties on Sepia and Atapu by 70% to around $ 2 billion. The auction winner will be determined based on the level of future production that the consortium is willing to share with the government.

The auction grants Petrobras the first right to operate a 30% stake in both fields, even if the consortium is outbid. Petrobras would then have 30 minutes to decide whether to join the winning group and operate the facilities.