In an effort to bolster its fiscal health, the federal government is set to auction the rights to the uncontracted portions of three shared reservoirs—Mero, Tupi, and Atapu—located in the pre-salt Santos Basin on Thursday, November 4. This auction, organized by Pré-Sal Petróleo (PPSA) at the B3 exchange in São Paulo, is critical for meeting the government’s fiscal targets, with expectations of raising R$10.2 billion by 2025. Officials, however, regard this estimate as conservative.
The government has set a fiscal target of a zero deficit. Under the current fiscal framework, it can tolerate a shortfall of up to R$31 billion, indicating a precarious economic situation. The projected revenue of R$10 billion comes from PPSA’s detailed calculations regarding the transfer of the government’s rights and obligations.
In a recent bimonthly report, the economic team revised its revenue expectations, lowering them by R$4.5 billion from an earlier estimate of R$14.7 billion. If the auction results are disappointing, it could lead to an extraordinary budget freeze of R$10 billion, given that the government is already anticipating reaching its deficit limit.
The Federal Court of Accounts (TCU), which oversees public spending in Brazil, approved the auction on Wednesday, despite objections from the Prosecution Service that had requested a postponement due to alleged irregularities. Justice Bruno Dantas emphasized that halting the auction could have adverse fiscal implications and erode investor confidence. While he acknowledged governance concerns, he declared that future divestment processes will require prior court approval.
The auction will include the full federal stake in the producing reservoirs: 3.5% in Mero, 0.833% in Tupi, and 0.950% in Atapu. These reservoirs extend beyond their respective fields, with unitization agreements defining production shares when neighboring fields are governed by concession or production-sharing contracts. The government will sign new agreements when these reservoirs extend into yet-to-be-offered areas.
Petrobras is the operator for all three fields, and potential partners include companies such as Shell, Total, CNOOC, CNODC, and Galp. While the current auction doesn’t offer entry into existing consortia, the winners will acquire government production rights.
Market analysts indicate that the timing is crucial, as the industry is navigating a low oil-price environment due to a global oversupply. Marcelo de Assis from MA2 Energy noted that the reserves being auctioned present low-risk, long-term opportunities, although the pool of prospective buyers might be limited to those already involved in the fields or foreign investors seeking to expand their production capabilities.
Rivaldo Moreira Neto from A&M Infra highlighted that the auction would appeal to companies interested in modestly increasing their reserves in established fields, while economist Claudio Frischtak remarked positively on the auction from a fiscal perspective. He believes that remitting the proceeds to the Treasury aligns well with the government’s current financial constraints, suggesting that the auction’s minimum price aligns closely with the fair valuation of these assets.
This auction represents a pivotal moment for the Brazilian government as it seeks to navigate through fiscal challenges, potentially reinvesting in the economy and enhancing investor confidence through carefully managed resource allocations.