By Paul Kiernan
RIO DE JANEIRO
Petrobras and Exxon teamed up in six exploration blocks in the Campos Basin off Brazil's southeastern coast, at least some of which are believed to hold oil in an ultra-deep layer known as the "pre-salt." Though the companies agreed to split the financial burden of developing the blocks 50-50, Petrobras will operate all six of them, meaning it will make the key decisions.
The auction marked a return by Exxon, the world's largest publicly traded oil company, to Brazil after it abandoned efforts to drill in the neighboring Santos Basin in 2012. The Wall Street Journal reported in April that Exxon was discussing a possible partnership with Petrobras in hopes of regaining a foothold in one of the world's richest areas for offshore oil exploration.
Exxon Mobil's chief executive in Brazil, Carla Lacerda, declined to comment.
For Brazil, the signing bonuses from Exxon and Petrobras, which beat bids by majors including Shell, Repsol, Cnooc, Total and BP, marked a boon to government efforts to attract private investment as the country recovers from its deepest recession ever. Officials had predicted signing bonuses would fall in the range of $157 million to $313 million.
Since taking office last year, conservative President Michel Temer has sought to loosen regulations that had limited private-sector interest in Brazil, even after the Western Hemisphere's largest discoveries in three decades were made here in 2007.
In November, the government scrapped rules that Petrobras operate and take a minimum 30% stake in all pre-salt fields. This year, the government also reduced the minimum levels of equipment and machinery that oil companies are required to source locally, which drove up Brazil's production costs.
"What we need to do is exploit our potential at a moment when the economy needs the oil-and-gas industry more than ever," Energy Minister Fernando Coelho Filho said.
Speaking to reporters, Petrobras CEO Pedro Parente attributed the company's willingness to fork over big bucks to "the whole suite of measures that the government has adopted to increase the regulatory framework [and] stimulate investment."
He also suggested Petrobras knew something about the blocks on offer that its rivals didn't. "Petrobras is the company that naturally has the greatest body of information about the Brazilian offshore, so you should be able to imagine that we wouldn't pay the amount we paid if we didn't have information that it was worth it," Mr. Parente said.
Petrobras and Exxon agreed to pay a total $1.08 billion in signing bonuses for just two blocks, dubbed C-M-346 and C-M-411. In the former, their bid was more than five times higher than the runner-up consortium formed by Shell and Repsol. In the latter block, Petrobras and Exxon offered nearly 25 times as much as runners-up Total and BP.
Magda Chambriard, the former head of Brazil's national oil agency, known as the ANP, said the blocks Petrobras and Exxon won together are unique because studies have shown them to contain oil in the pre-salt layer, where Brazil's largest reserves have been found. But the blocks were auctioned under a less-onerous concession regime than is usually the case for pre-salt oil.
"Those blocks are special because they're...well-identified as pre-salt, with good-quality seismic, a lower government take and without that whole pile of red tape," Ms. Chambriard said. "That's why bids were so high."
Wednesday's auction was the first of nine that Brazil plans to hold through 2019. The next two, scheduled for Oct. 27, will take place under the pre-salt regime and are seen generating $2.42 billion in signing bonuses, said ANP Director Décio Oddone.
Mr. Parente said the decision for Petrobras to operate all the blocks in which it partnered with Exxon was mutual and based on its position as the undisputed leader in Brazil's deep-water sector.
But Petrobras faces challenges that are equally unmatched in the oil industry. It has the largest debt burden of any oil company, is at the center of the biggest corruption scandal ever uncovered, and is exposed to meddling by Brazilian politicians due to the government's controlling stake in the company.
While Mr. Parente, whom Mr. Temer appointed last year, is widely seen as a competent executive, analysts say Brazil's 2018 presidential election represents a major risk to Petrobras's prospects for fixing its balance sheet.