In late 2005, ANP (the government department responsible for oil and gas licences) put some 17 onshore marginal oilfields up for auction to local and international companies. The oilfields were described as “marginal” as they were all once owned and operated by Petrobras. However, 10 years ago Petrobras decided it was uneconomic for them to continue operations and closed them down so as to concentrate on their offshore interests. Some 163 companies tendered bids ending with a real “Dutch auction” where companies were openly invited to outbid each other in the same room. Many of these companies were individuals with no background in oil and gas.

Although we like the opportunities onshore Brazil, we decided not to bid for any of these licences but instead to observe how the process would pan out. As we suspected many licences were won by “rogue elements” who in the end were desperately trying to farm out their licence before the expiry of the date when they had to put up the guarantee money to ANP. Many of the successful bids were returned to ANP with the winning bidders unable to put up the necessary guarantee money. Most of these were taken up by the second highest bidder in all but one case.

The Company has aligned itself with a local engineering contractor based in Rio to help monitor events in Brazil. We signed a joint venture agreement with Proen Engenharia e Manutencao (Proen) on the 27th March and intend to bid in the 8th round on a 50/50 basis with Gold as Operator.

Proen have over 700 employees and sites in the most industrialised parts of Brazil and we see them as an excellent joint venture partner for a new country.

We believe Petrobras, who had a sole monopoly on all oil and gas exploration in Brazil up until around 15 years ago neglected the onshore scene when the offshore was auctioned off to international oil companies. It’s only in the last few years that there has been any competition to Petrobras in the onshore licences and most of this is from local companies.

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