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Pre-salt developments change the game in Brazil

24.03.2014 / Energyboardroom

Operators do not currently face a lack of commercial sustenance in the Brazilian market, but there is still the need to ensure one’s company is best suited to dealing with the local business environment. Speeding up the integration of new ideas and concepts into the Brazilian oil and gas industry is one way that policymakers are expediting the industry reshuffle that will allow the best use of hydrocarbon resources across the country. There is an imperative to gain the skills that Brazilian industry can use to ease access to resources. Lowering costs and increasing capabilities must be married with the Brazilian government’s desire to increase the capabilities of local industries through use of local content regulation (LCR).

This dual ambition creates both opportunity and market turbulence, which can both help and hinder companies operating in Brazil to varying degrees.

Almir Barbassa, the CFO of Petrobras, details the wealth flowing from equipment already installed: “The first FPSO at the Lula field is producing more than 100,000 bpd with four wells. The production rate per well averages 25,000 bpd, although the platform itself was built to receive six producing wells. Two of them are idle because there is no room on the FPSO due to the amazing productivity of the other wells.”

Barbassa also gives an idea of the success Petrobras has already had from the pre-salt fields: “The success rate of the wells we drilled in the pre-salt stands at 85 percent. We have a fleet of 40 new generation rigs able to drill in waters up to 2000m depth and a total of 69 floating rigs working for Petrobras.”

The CFO of Brazil’s national oil giant goes on to describe the current opportunities that Brazil’s biggest operator, with 76 percent market share, is taking advantage of: “Today we are working to develop the existing fields. Petrobras is installing more than 30 oil rigs between 2013 and 2018. Most of the capex needed to build this equipment has already been deployed – not only the USD 42 billion for the transfer of rights, but the development of 20 FPSOs, each costing USD 1.5-1.8 billion. If we include the cost of adding wells to the FPSOs, each module requires USD 5-6 billion before starting production. We are paying for future production today.”

Barbassa estimates output of 4.2 million bpd, plus 1 million bpd in gas equivalent, by 2020.

The break-even figure for pre-salt production is USD 40-45 per barrel of Brent crude, and with the price of oil currently over USD 100 per barrel, pre-salt fields have the capacity to be very lucrative both for Brazil and the oil and gas sector. Local and international companies are eager to engage with this opportunity too.

Milton Costa, executive secretary of the Brazilian Petroleum Gas and Biofuels Institute (IBP) also predicts much pre-salt activity. He thinks that the first priority, however, must be reducing drilling costs: “Drilling operations need to be further optimized. This is work in progress. The pioneer wells in pre-salt cost up to USD 200-300 million, but at Lula, Petrobras is now drilling for some USD 70-80 million, less than three months since the start of operations.”

Brazil has been very lucky, as the pre-salt discoveries came just after the techniques for deepwater extraction had been fully developed and learned in the Campos Basin.

Costa predicts significant challenges, though not insurmountable ones: “Petrobras has a huge financial challenge in the next three to four years. They have to put the last systems in the Campos Basin in production and add pre-salt projects. When production goes up, they will start to generate a lot of cash flow, and in four years will be in a very good position to face all the other investments.”

 

To read more articles and interviews on Brazil, and to download the latest free report on the country, click here.

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