Shell (LON:RDSB) and Total were two of the oil giants which emerged victorious in the fight over stakes in Brazil’s largest ever oil discovery off the South American country’s coast.
The pair have each been awarded 20% in the consortium for the Libra field in the prolific Santos basin off Brazil, while Brazil’s state-owned Petrobras has a 40% stake.
There was a signature bonus of just under $7 billion overall, which works out at $1.4bn for Shell.
Based on initial seismic data and a single well drilled by Petrobras in 2010, reserves are thought to be between 8 and 12 billion barrels.
Exxon Mobil, Chevron, BP (LON:BP.), BG (LON:BG.) and Spain’s Repsol all declined to bid, with only 11 companies registered in the auction. This is well below the 40-plus names that were expected to compete for the oilfield.
“We see this as leaving a clearer run for Total and Shell, both recognised as leaders in deepwater, with Shell additionally the first international oil company to produce commercially in Brazil,” said RBC Capital’s Peter Hutton.
The focus, according to the analyst, will now be on how much each company will have to commit to the venture.
“Quantifying this commitment remains unclear at this stage, but lower in materiality in the early phase. The commitment to 2017 is likely to be in the millions rather than billions,” Hutton added.
Collecting seismic data could cost a total of $100mln, two wells could need $150mln each, while an extended well test will set them back around $200mln, he estimates. These are the minimum work commitments to be carried out by 2017.
This implies Shell and Total will have to spend $300mln each between 2014 and 2017, which is well below the $24-26bn Total had been expecting to shell out, while the Anglo-Dutch heavyweight’s guidance of $38bn dwarfs the amount it is likely to spend.