A Method to Estimate the Block Values Through Competitive Bidding

Furtado, Ricardo, Saul Suslick, State University of Campinas – UNICAMP, Campinas, Brazil

Bidding process is a mechanism that has been used by some countries to distribute optimally their oil exploratory areas. The concession process for oil and gas exploration through competitive bidding marks a significant step in the opening of Brazil’s petroleum sector. Six licensing rounds for oil and gas have taken place in Brazil after 1999. Approximately US$ 940 million have been collected conceding 343 blocks encompassing a surface of 238 thousands of km2 and involving more than 50 oil companies. Petrobras, alone or in a joint venture, is actually the operator of 202 blocks, investing about US$ 406 million in all rounds. This paper attempts to delineate the main features and statistics of those bids and the impacts on the exploratory efforts for new oil and gas discoveries in the Brazilian offshore region. Considering that the bid value is a fraction of the estimated reserve value, another objective of this paper is to reach a set of proxies of unknown values of the blocks through the successful bids. The blocks are divided considering their geological char­acteristics and the winners’ value is estimated for each group. The estimated value of the blocks is calculated through stochastic simulation of these bid fractions using a compound probability distribution. The East Margin Deep Water is the most attractive area, concentrat­ing about 90% of Brazilian oil production and with an estimated mean value block of US$ 2,180 million. These values can be used as auxiliary decision framework for new invest­ments by oil firms as well as for the regulatory agency to evaluate bid performance.