With Buzios TOR (Transfer of Rights) excess area now successfully awarded, Petrobras will practically have two contracts for the complete Buzios area, one for oil originally contracted to Petrobras under TOR regime and another for surplus volume in new Production Sharing Agreement (PSA) regime with its partners China National Offshore Oil Corporation (CNOOC) and CNODC China National Oil and Gas Exploration and Development Company).

With the PSA contract starting in 2021, the production of the complete Buzios area will have to be shared by both the PSA contract and the TOR contract. As a result, the new adjusted TOR plan will recover its 3.15 billion barrels of oil equivalent (boe) over a longer time period, while the project will receive less cash flow than with the original TOR plan.

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In the full development of Buzios, TOR portion of the contract receives much smaller part of production once PSA plan starts in 2021, resulting in 3.15 billion boe of originally contracted reserves being recovered over a longer period of time. 

Oil Production Split in Full Development vs Original Development

Source: Upstream Analytics, GlobalData Oil and Gas © GlobalData

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It is also interesting to note that how compensation payments will be allocated is still to be determined. 

If it was to be a single upfront payment, the remaining NPV (net present value) of the PSA is estimated to have almost zero value. On the contrary, if the payment is distributed equally over the first five years after 2021 this would increase the PSA NPV by almostUS$3 billion. 

From the results of the bidding round, it was clear that the surplus TOR areas were perceived as expensive by major operators. Main international operators registered to participate in the bidding round but did not present any bids. 

Petrobras is the clear big winner in the process of competing for the resources of TOR surplus areas as the company preserved operatorship in developing a massive amount of unrisked resources at relatively low production cost. The terms of the bidding round gave Petrobras an advantage in declaring a minimum operatorship stake. The signature bonus was quite high, only for Buzios such bonus was of US$17 billion and there were as well the rather complicated terms for negotiating compensation in the co-participation agreement.