ExxonMobil, Chevron Secure New Exploration Rights in Brazil Auction

Exxon Mobil Corporation XOM and Chevron Corporation CVX have reached a milestone in expanding their exploration acreage by acquiring exploration rights in Brazil's Foz do Amazonas basin. The companies have acquired exploration rights to multiple offshore blocks in an auction conducted by the Brazilian government. The state-owned energy company, Petrobras, also won exploration rights for several of these offshore blocks in the Foz do Amazonas basin.

Strategic Importance of the Foz do Amazonas Basin

The basin is considered a resource-rich area, and it is expected to yield promising exploration results. However, due to its rich biodiversity, the basin is considered environmentally sensitive and is vulnerable to the impacts of oil and gas operations.

The auction has garnered significant criticism from environmentalists who have expressed concerns regarding exploration efforts in this basin. Environmentalists have raised concerns regarding the potential contamination of water in this region, which is equally vital for the ecosystem as well as the local Brazilian population. Furthermore, exploration activities may also disrupt the natural ecosystem in the Foz do Amazonas basin.

Details of Brazil's Latest Auction

The Brazilian National Petroleum Agency put up 147 blocks for auction in this round. These blocks are located across four major regions (also called plays), which include the Foz do Amazonas basin, with 47 offshore blocks, the Pelotas Basin with 34 blocks, the prolific Santos Basin with 50 blocks, and 16 offshore blocks in the Potiguar Basin. Additionally, the National Petroleum Agency also offered 21 onshore exploration blocks, which lie in the Parecis Basin.

A consortium of Petrobras and ExxonMobil has scooped up five offshore blocks in this auction, with the Brazilian state-owned energy firm assuming operatorship. Another consortium involving the two companies has secured five other offshore blocks where XOM will serve as the operator. Chevron has secured nine blocks in this round, as part of a consortium with CNPC, China’s state-owned energy company.

Permitting Challenges

These companies plan to explore oil in the Foz do Amazonas basin, which is an environmentally sensitive region due to its close proximity to the Amazon rainforest. This makes oil and gas operations in the region highly controversial. Notably, the rich biodiversity of this region is an important factor that has led to delays in obtaining permits for drilling activities. Notably, PBR has been trying to get a drilling permit in this region since a long time.

Environmental Sensitivity and Backlash

Petrobras mentioned that if more and more exploration and production companies, including the oil giants, show their interest towards this region, it could promt the authorities to grant exploration licenses for this region. Environmentalists were not happy with the decision to put up these offshore blocks, off the coast of the Amazon rainforest, for auction. The Foz do Amazonas basin hosts incredible coral reefs and is inhabited by several indigenous communities. The decision to let oil majors drill in this region may put the ecosystem and the lives and livelihoods of these indigenous communities at risk.

While Brazil's Mines and Energy Minister believes that the interest shown by global energy giants in these blocks is incredible and could help alleviate poverty in northern Brazil, environmentalists argue that the decision may exacerbate income inequality in the region. These blocks are believed to hold immense potential, as they share similar geological characteristics with neighboring Guyana, which hosts prolific oil and gas fields, such as the Stabroek Block.

Zacks Rank & Key Picks

Both XOM and CVX currently carry a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are Flotek Industries Inc. FTK and Oceaneering International OII. While Flotek Industries sports a Zacks Rank #1 (Strong Buy) at present, Oceaneering International carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Flotek Industries specializes in green chemistry, which provides innovative solutions aimed at reducing the environmental impact of the energy industry. Flotek develops specialty chemicals tailored for both domestic and international energy producers, as well as oilfield service companies. These chemicals not only help reduce the environmental impact of hydrocarbon production but also lower operational costs.

Oceaneering International delivers integrated technology solutions across all stages of the offshore oilfield lifecycle. The company is a leading offshore equipment and technology solutions provider to the energy industry. OII’s proven ability to deliver innovative, integrated solutions supports ongoing client retention and new business opportunities, ensuring steady revenue growth. 

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This article originally published on Zacks Investment Research (zacks.com).

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