Over the past four years discoveries in the pre-salt deposits in the ultra-deepwater Santos Basin offshore Brazil have floored investors and market observers worldwide, primarily by the sheer scope of their potentially recoverable reserves, though the story itself is just as mind-boggling.
Most of the world became aware of Brazil’s emerging offshore oil and gas wealth in late 2007, when Brazil’s national oil company (NOC) Petroleo Brasileiro (NYSE: PBR), or Petrobras, unveiled test results from the Tupi field and estimated that it contained a recoverable volume of 5 to 8 billion barrels of oil equivalent (boe).
For many in the general public, this announcement seemingly came out of nowhere. But Brazil has a long history of offshore oil production, much of which has taken and continues to take place in the prolific Campos Basin, located on the north coast of Rio de Janeiro State. The country first began to flow oil from this area in the mid-1970s, and Petrobras discovered its first two giant oil fields, the Albacora in 1984 and the Marlim in 1985. Today the Campos Basin continues to accounts for roughly 80 percent of Brazil’s oil output.
Over time and as technology improved, Petrobras gradually began to shift its attention to ever-deeper waters, steering clear of the thick salt formations that featured low penetration rates and presented a formidable challenge
But in the 1990s Petrobras geologists became interested in determining what lay beneath these regions, particularly in the Santos, Brazil’s largest offshore sedimentary basin. The map below depicts the Campos, Santos and Espirito Santo basins, offshore regions that contain roughly 85 percent of the country’s oil reserves.
In 2000-01 the company successfully bid on acreage put up for auction by Agência Nacional do Petróleo, the regulatory agency that announces tenders and oversees Brazil’s oil, natural gas and biofuels industries. The NOC won seven blocks in the Santos Basin, six of which it operates with other international oil companies and one of which is operated by ExxonMobil Corp (NYSE: XOM).
|Blocks||Consortium (Operator Listed First)|
|BM-S-8||Petrobras (66%), Royal Dutch Shell (20%), Galp Energia (14%)|
|BM-S-9||Petrobras (45%), BG (30%), Repsol (25%)|
|BM-S-10||Petrobras (65%), BG (25%), Partex, Partex Oil & Gas (10%)|
|BMS-11||Petrobras (65%), BG (25%), Galp Energia (10%)|
|BMS-21||Petrobras (80%), Galp Energia (20%)|
|BMS-22||ExxonMobil (40%), Hess (40%), Petrobras (20%)|
|BMS-24||Petrobras (80%), Galp Energia (20%)|
Over the next several years geologists and geophysicists from Petrobras and its partners undertook the biggest seismic data collection program in history and developed mathematical models to process the data and identify what might be beneath a thick layer of salt.
With this information in hand and potentially a clearer understanding of what lay beneath, Petrobras and its partners spent about USD230 million sinking their first wildcat well in the Santos Basin to confirm the presence of hydrocarbons. Petrobras has enjoyed a 100 percent success rate on subsequent well tests in the Santos Basin, a remarkable feat that’s indicative of a world-class play.
All told, Petrobras’ discoveries in the so-called Santos Cluster are estimated to contain recoverable reserves that exceed the amount of hydrocarbons the NOC has produced in its existence. These properties could more than double Petrobras’ existing reserve base of roughly 14.1 billion barrels of oil equivalent (boe). The list below enumerates four of the NOC’s biggest pre-salt oil and gas discoveries.
|Field (Year Discovered)||Estimated Reserves|
|Tupi (2006)||5-8 bn boe|
|Iara (2007)||3-4 bn boe|
|Guara (2007)||1-2 bn boe|
|Jupiter (2008)||4.5 bn boe|
Of course, finding prospective fields and estimating reserves is one thing, but actually producing these massive reservoirs is another, particularly in ultra-deepwater regions where extremes of temperature and pressure wreak havoc with traditional equipment.
To Petrobras’ credit, the company has leveraged its industry relationships, government support and relatively low cost of capital from BNDES, Brazil’s development bank, as well as other state-backed institutions to ramp up production in a remarkably quick fashion. Petrobras produced first oil from Tupi in March 2009 and expects to grow output from pre-salt fields to 241,000 boe per day by 2014 and over 1 million boe per day by 2020.
As the company gains experience operating in the deepwater, drilling costs have shrunk by about a third, making these plays economic when oil prices are around $60 a barrel. Although the Santos Basin cluster continues to capture the public’s imagination, many often overlook a string of new finds in Petrobras’ Campos Basin, a play that’s cheaper to produce because of its relative proximity to shore and existing infrastructure. Many of these discoveries were facilitated by new techniques and equipment that enable the company to drill deeper into the seabed. Check out the table below for a list of these discoveries.
|Date||Field||Participation||Fluids||Est. Recoverable Vol.||Water Depth (m)|
|Mar. 2010||Pinarema||PBR (100%)||Light Oil||15 mn barrels||800|
|Feb. 2010||Barracuda||PBR (100%)||Oil||40 mn barrels||860|
|Feb. 2010||Pampo||PBR (100%)||Oil||25 mn barrels||200|
|Nov. 2009||Rig Fence
|PBR (100%)||Light Oil||25 mn barrels||400|
|PBR (100%)||Light Oil||280 mn barrels||976|
|N. Gas and
|Sept. 2008||BM-S-40/Sidon||PBR (100%)||Light Oil||150 mn barrels||274|
|July 2008||Golfinho||PBR (100%)||Light Oil||150 mn barrels||1,374|
|May 2008||BM-S-40/Tiro||PBR (100%)||Light Oil||Undisclosed||235|
El Paso (35%)
|N. Gas and
El Paso (35%)
|N. Gas and
|Mar. 2007||BC-60/Caxareu||PBR (100%)||Light Oil||570 mn barrels||1,011|
All of these pre-salt and post-salt plays will ensure that Petrobras and its partners are drilling in the Campos and Santos Basin for a long time, a boon for oil services and equipment firms, many of which are establishing operations in Brazil to meet escalating local content requirement. A brief look at Petrobras’ shopping list from its 2010-14 Strategic Plan provides a sense of how much money is at stake for early movers.
In the Dec. 1, 2010, issue of The Energy Strategist, Elliott Gue will run through his favorite services and equipment names that stand to benefit from key secular growth trends, including rising exploration and production in the deepwater. Don’t miss out on this exciting issue. In addition to an entire issue dedicated to the best investment opportunities in the oil services and equipment spaces, you’ll also be able to access a report Elliott is putting together on his top mergers and acquisition targets for 2011. Click here to sign up for your free trial of The Energy Strategist.
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