Mexican politics explains why Americans are out of Libra.

247 - The withdrawal of American and European companies from the Libra field auction, the largest in the pre-salt layer, has one reason: the decision by the Mexican government, led by the liberal Enrique Peña Nieto, to break Pemex's monopoly. The company's main reserves are in the Gulf of Mexico, the United States' backyard, where the exploratory risks may be lower than off the Brazilian coast.

In his column today, Ilimar Franco, from Globo, addresses the issue: 

Viva Zapata!

There are several reasons why American oil companies Exxon and Chevron did not participate in the Libra auction. But a lobbyist for a European oil company believes that the reform of oil laws in Mexico was a decisive factor. Its president, Peña Nieto (PRI), proposed (in August) ending the state oil monopoly. Private companies will be able to partner with Pemex and share the profits from exploration. American companies are euphoric. Estimated reserves are 29 billion barrels in the pre-salt layer of the Gulf of Mexico and 13 billion barrels of shale oil. And then there are the costs. These fields are located in the backyard of the refineries that supply the American market. 

Another political columnist, Luiz Carlos Azedo, from Correio Braziliense, states that, without the Americans, the Libra auction will be dominated by Asian companies – especially Chinese ones:

China Business - Luiz Carlos Azedo

The American company Exxon Mobil and the British companies BP and BG, giants in the oil sector, announced yesterday that they are withdrawing from the pre-salt auction of the Libra field in the Santos Basin. The Americans had already been signaling disinterest in the auction, as this column anticipated last Saturday, but the withdrawal of the British company BG caught Petrobras by surprise: it is its main partner in the pre-salt.

According to the director of the National Petroleum Agency, Magda Chambriard, each company cited a particular reason for withdrawing from the deal. The government initially expected up to 40 companies to participate in the auction, scheduled for October 21. Only 11 have expressed interest so far, with an entry fee of R$ 2 million.

This has increased market expectations that Chinese state-owned companies Sinopec, Sinochem, and CNPC will be the main contenders in the bidding process. The winner will have to make an immediate payment of R$15 billion and commit to a minimum investment of R$610 million over the first four years, which has ruled out Brazilian companies from the competition, with the exception of Petrobras, which already owns 30% of the field under the new legislation. The Norwegian company Statoil and the French company Total are also strong candidates, according to the ANP (National Agency of Petroleum, Natural Gas and Biofuels). However, the Chinese companies have an advantage because time and money are not problems for China. The most important thing is to secure 70% of the pre-salt oil for its economy.

Skepticism

The Brazilian National Petroleum Agency predicts that Libra will be producing 1 million barrels per day in 2020, half of what Petrobras took 60 years to achieve. However, this expectation is not a consensus in the market, where information circulates suggesting that exploration of the field could take 20 years due to technological difficulties and financial costs.

Investment

The Libra field exploration contract has a non-renewable term of 35 years, and the projected investment is US$200 billion.

This issue also opens up an ideological debate. While conservative newspapers, such as Globo, blame excessive state intervention, nationalist groups argue that Petrobras should have full priority in the pre-salt reserves. Below is an article by Fernando Brito, published in Tijolaço:

Americans and British have left the pound. Are we going to miss the chance to keep them out?

My apologies to my friends if I risk repeating myself, but there is so much money involved – and money so important to Brazil – that I think it's important to clarify as much as possible, and to as many people as possible, everything that is happening in this preparation for the Libra auction.

First, an addition that only confirms what I said before: Chevron, another American giant, joined Exxon, British Petroleum, and British Gas in their withdrawal. Americans and British acted in coordination, in a clearly political move.

The American government and oil companies have such a close relationship that it's unthinkable that this joint action wouldn't have the approval – if not the inspiration – of US leaders.

Secondly, everyone knows there's a skeleton of an agreement signed between Petrobras and the Chinese to enter the auction together as a virtually unbeatable force. Because the Chinese want "compensation" in firm sales of crude oil to their country.

So, would that be bad for Brazil? Wouldn't it be much better to refine the oil and sell refined products? At times – and this is a global trend due to the insufficient number of refining facilities – yes.

But the issue is that, given the investment and timeline for refinery implementation, if everything goes well, we will reach 2020 with a refining capacity of around 3,6 million barrels/day, just enough to supply the domestic market for refined products. However, oil production will already have reached close to 6 million barrels per day, which produces a surplus of nearly 2 million barrels of crude oil per day that will have to be exported in crude form.

But shouldn't we invest more in refineries then? Yes, but back to the problem: it's expensive and time-consuming physically, and the economic return on investment is extremely slow, taking a decade or more. Precisely for this reason, there is a refinery deficit in the world and, not by chance, building refineries isn't even in the plans of foreign oil companies for Brazil.

Furthermore, a refinery doesn't operate with just any type of oil; it can only use oil with a specific density. Before the pre-salt discoveries, 85% of the oil we produce today is heavy oil. The oil from the pre-salt discoveries, which will correspond to the increased production, is light oil.

The drawback of the Libra auction lies in the initial bonus amount – R$ 15 billion – which will force a detrimental decapitalization of Petrobras, which, just for its mandatory 30% stake under the new law, will have an outlay of R$ 4,5 billion. If, as everything indicates, the Brazilian company's participation is 60% or slightly more than that, the outlay will be around R$ 9 to 11 billion. Money that comes out of its investment capacity to create the so-called – and bad – fiscal surplus.

But, given the political climate that has formed, this ends up being acceptable, if it guarantees us majority control of the largest oil field in the world today.

I'm writing this in the early hours of the morning, still without seeing the headlines for this Friday.

But it's already clear how astonished and indignant our media is being about the withdrawal of Americans and British from the auction, referring to it as a "failure" and a "depletion."

And I ask the nationalist sectors that still advocate postponing the auction: wasn't that what the country wanted, especially after the revelation of American espionage on Petrobras?

Are we going to lose, through childishness, the historic opportunity to hegemonically control the largest oil field in this country and, today, in the world? Everything within the law, within the rules it has established, with such solidity that it will guide the exploratory development of the enormous pre-salt treasure yet to be discovered or delimited?

The answer to that can only be no!