Brazil's oil fields auction starts after court setback

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Rio de Janeiro (AFP)

Brazil's much anticipated multibillion-dollar auction for offshore, pre-salt oil fields went ahead Friday after the government successfully appealed an 11th hour injunction to stop the sale.

More than two hours after the scheduled start, representatives from major global oil companies, including Shell and ExxonMobil, gathered in the room for the beginning of the auction.

Judge Ricardo Augusto de Sales had suspended the sales in Rio de Janeiro overnight at the request of the country's main trade union grouping and the leftist Workers' Party, which has attacked the auction as a sell-off of the nation's wealth.

But the government successfully appealed.

The national oil agency had said the auction would start "immediately," once an appeal succeeded.

Pedro Parente, CEO of Brazil's national oil company Petrobras, was confident despite the hiccup, saying that in previous auctions the government had always managed to overcome court injunctions and "I don't see this as any different."

Eight blocks were up for grabs in two rounds that could bring in revenue of 7.75 billion reais ($2.36 billion) in signing bonuses, with far more coming in through production sharing down the road, the national petroleum agency said.

The last pre-salt auction was held four years ago, when foreign capital had a far harder time getting in on Brazil's oil action.

Sixteen companies were accredited for the latest auction.

- Changing rules -

The pre-salt fields hold the promise of billions of barrels of oil, despite the technical challenges of operating in the deep Atlantic and the depressed state of global oil markets.

Scandal plagued center-right President Michel Temer has rewritten the rules since coming to power last year to make the auctions more appetizing to investors.

Chief among these is an end to the requirement for national champion Petrobas, which is emerging from a prolonged graft scandal, to operate and hold a minimum 30 percent stake in all pre-salt fields.

This frees up Petrobas, which still has a preemptive right to select blocks, and also opens the door wider to foreign partners.

Winners on Friday would be companies that offer the government the highest share of oil after cost in a production sharing scheme.

On September 27, Brazil held its most successful oil auction in its history when Petrobras and ExxonMobil joined up to pay nearly $1.2 billion for drilling rights in non-pre-salt areas in the offshore Campos Basin.

The sales will provide welcome extra revenue for the government, which is trying to rebalance the books with austerity cuts and mass privatizations, following a severe two-year recession.

But a report from a congressional consultancy says the pre-salt sales will shortchange Brazil.

The signing bonuses are only a fraction of revenues the government hopes to eventually obtain.

The bulk will come through the profit sharing, but according to the report quoted by Folha newspaper, "the minimum percentages of surplus oil to be collected should be considered very low for pre-salt blocks."

In his ruling to stop the auction, de Sales said that there was "plausibility" in the arguments requesting an injunction and that he was acting to avoid "any possibility of damage to public assets -- especially given the values involved."

Dilma Rousseff, the leftist president who was removed in an impeachment proceeding last year and replaced by Temer, lashed out against the auction.

"Brazil is handing oil over to foreigners for the price of bananas," she tweeted.