Ecopetrol Wins Joint Bid to Explore Pau-Brasil Oil Block in Vast Santos Basin off Brazilian Coast

Colombian state-controlled oil company Ecopetrol (NYSE: EC) (BVC: ECOPETROL) was among the exploration block winners today at an auction in Brazil and now holds the rights to a portion of the oil extracted from the Santos basin off the coast of South America’s largest country.

“This bet in Brazil is part of the business plan designed to continue increasing our oil and gas reserves.” – Felipe Bayón, president of Ecopetrol

By winning the joint bid, which Ecopetrol submitted along with BP and China National Offshore Oil Corporation (CNOOC), the company now has an interest in exploration output from a highly sought after and potentially very lucrative section of the vast offshore “pre-salt” area, where billions of barrels of oil are located deep below the seabed.

As part of the bid agreement approved by the country’s National Agency of Petroleum, Natural Gas and Biofuels (ANP), 63.8% of the oil found in the block will go to the Brazilian government. BP, as operator of the planned exploration, holds the rights to 50% of the remainder of the extracted oil. CNOOC will get 30% and Ecopetrol will receive 20%.

According Reuters, the consortium also agreed to pay around $125 million USD up front to the Brazilian government for rights to explore the Pau-Brasil block, which spans 1,184 square kilometers off the southern coast of the states off São Paulo and Rio de Janeiro.

“We are very pleased to enter one of the offshore exploration areas with the greatest hydrocarbon potential in the world, which allows us to diversify and strengthen the Ecopetrol Group’s exploration portfolio,” said Felipe Bayón, president of Ecopetrol.

In announcing the news, Ecopetrol released the above chart from the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) showing the location of the Pau-Brasil block off the southern coast of Brazil. (Credit: Ecopetrol / ANP)

Though Ecopetrol will benefit the least of the three companies involved in the bid, the move to participate in the Brazilian auction aligns with the company’s ongoing push to increase its reserves by looking beyond mainland Colombia.

“This bet in Brazil is part of the business plan designed to continue increasing our oil and gas reserves,” said Bayón.

This marks the fourth exploration block in Brazil that the Bogotá-based company now holds an interest in, with other bids won in the Foz do Amazonas, Potiguar, and Ceará Basins.

Ecopetrol has also won joint bids on coveted blocks off the coast of Mexico following the nation’s decision to open its oil industry and has conducted a series of offshore drilling expeditions in U.S. waters in the Gulf of Mexico as well as the Colombian Caribbean.

Today’s auction in Brazil was fifth conducted so far by the Brazilian government for blocks within the pre-salt region.

Other companies that won bids at today’s pre-salt block auction include Exxon Mobil and Qatar Petroleum International (joint winners of the Tita Block in the Santos Basin), Royal Dutch Shell and Chevron (joint winners of the Saurno Block in the Santos Basin) and Petrobras (winner of the Tartaruga Verde Block in the Campos Basin).

The Shell/Chevron group and the Exxon/Qatar group each agreed to pay some $750 million USD initially to the Brazilian government for their rights, per Reuters.

When the pre-salt discovery off the Brazilian coast was made in 2006, it immediately became one of the biggest the world had seen in decades. It gets its name from the ancient nature of the fossil fuels that sit below a geological layer of salt located very deep underground and dating back some 160 million years.

Extraction of the oil had been quite expensive early on, but costs have fallen in recent years, making the massive discovery much more commercially lucrative and enticing for Brazilian state oil company Petrobras and the wide range of global companies that have been acquiring an interest.

READ MORE: Ecopetrol Agrees to Deal to End Labor Dispute with Petroleum Workers Union

Widespread corruption and political scandals, as well as the country’s upcoming presidential election, have created a climate of uncertainty that has clouded the Brazilian oil industry. But these auctions continue to bring in billions of dollars for the nation’s government as the investment opportunities remain compelling to many of the world’s top oil firms.

(Main photo credit: Catmoz / Pixabay)