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Big Oil gives Brazil the cold shoulder in second auction flop

Kitco News

RIO DE JANEIRO (Reuters) - Brazil held a second underwhelming oil auction in as many days on Thursday, as major global oil firms passed again on offshore blocks billed as among the world’s most promising.

The only block awarded in Thursday’s auction went to state-run Petroleo Brasileiro SA (PETR4.SA), or Petrobras, and Chinese state firm CNODC, a unit of China National Petroleum Corp, who offered the minimum bid. Four other blocks received no bids.

The flop, following a similar lack of foreign interest in an even bigger round on Wednesday, was a wake-up call to officials who expected this week to crown Brazil as uncontested champion of the Latin American oil industry.

Brazil’s new right-wing government has pledged market-friendly reforms and worked to scale back the role of Petrobras in the energy industry so that better capitalized firms can tap its vast reserves. The meager auctions this week suggest they may have made a major miscalculation.

Even Petrobras failed to submit bids for two blocks where it had exercised its preferential right to operate any fields.

Its only bid on Thursday was a minimum offer for the Aram block, with a signing bonus of 5 billion reais ($1.2 billion), along with China National Oil and Gas Exploration and Development Corp (CNODC), which took a 20% stake.

Brazil also failed on Wednesday to award two of four blocks in the nation’s most ambitious oil round ever, as steep signing fees and the dominance of Petrobras in the “transfer-of-rights” (TOR) area scared off oil majors.

Thursday’s bidding round also offered access to the promising pre-salt area, where billions of barrels of oil are trapped beneath a layer of salt under the ocean floor. But the second auction was not subject to the same complex terms as the TOR auction, undermining the excuses that officials gave on Wednesday.

Reporting by Gram Slattery, Marianna Parraga and Marta Nogueira; Additional reporting by Rodrigo Viga Gaier and Roberto Samora; Editing by Brad Haynes, Marguerita Choy and Bernadette Baum

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