Brazil’s National Agency of Petroleum (ANP) reported that at the end of 2010, Brazil’s proven oil reserves totaled to 14.2 billion barrels and proven gas reserves reached 14.8 trillion ft3. The country currently possesses the 15th largest amount of proven oil reserves in the world and the pre-salt discoveries have greatly increased the likelihood of even greater amounts of proven oil and gas reserves in the near future. Industry sources have placed the current amount of probable reserves at 50 billion barrels, while certain studies have placed the possible reserves at over 100 billion barrels. From 2005 to 2010, the deepwater discoveries in Brazil accounted for approximately one-third of all discoveries worldwide during that time frame. Additionally, only 4% of total Brazilian offshore sedimentary basins are currently licensed for exploration.
Due to the high demand and consumption of oil and gas, both domestically in Brazil and abroad, various companies operating in the country have decided to place an emphasis on increased investment in exploration & production (E&P) to increase the potential for even more discoveries and production of greater amounts of oil and gas. The already large and growing demand for petroleum, coupled with the vast potential for additional production in Brazil has companies investing large amounts of money to focus on deep and ultra deep water E&P. More than 90 percent of Brazil’s current oil production comes from its offshore fields. In preliminary testing, certain reserves in the Santos Basin have been shown to have quality of up to API 28.5 grade oil, which makes developing these offshore oil reserves even more lucrative due to the possibility of a high quality of oil being produced.
The investments and projected investments by local, foreign and multinational firms have increased dramatically, with large amounts of money to be spent on E&P. Petrobras, a partially state-owned conglomerate, is currently ranked by PFC Energy as the 3rd largest energy company in the world as measured by market capitalization. The Petrobras 2011-2015 Business Plan calls for USD $224.7 billion of spending in the next four years, 57% of which will be focused on the E&P segments of their oil and gas business. Other Brazilian oil companies such as OGX, HRT O&G, and Petra Energia have significant investment plans as well. Multinational firms such as Shell, Chevron, ExxonMobil, and Statoil are planning to invest a combined total of USD $25 billion in Brazil between 2010 and 2013. Many other companies have committed large amounts of capital to ongoing and future projects in Brazil. The demand for products and services to meet this great expansion of oil and gas related activities will create many business opportunities for U.S. companies active in the oil and gas sector.
While the number of firms operating in Brazil has increased tremendously in the last few years, Petrobras remains the dominant player in this market. The company produces around 90% of Brazil’s total oil and gas output. With new regulations in effect regarding the pre-salt concessions, Petrobras will become the sole operator in these fields, and will have a minimum of 30% equity share in each field. This gives the company significant control over large amounts of the production from the pre-salt fields, The total investment by Petrobras and other companies in the pre-salt areas are projected to top USD $600 billion in the coming years to explore and develop the 50 billion plus probable barrels of reserves in these fields.
Recently, the 11th round of concession bidding was delayed. This concession, which was supposed to take place in the second half of 2011, is now postponed until early 2012. This round is scheduled to offer 174 blocks, with 87 offshore areas and 87 areas onshore. Although the blocks to be offered in this round are considered new frontier areas, the pre-salt areas will not be a part of the bidding, as they will have their own separate concessions through production sharing agreements, which are expected to be announced in early 2012 as well.
Market Demand and Data
Brazil has seen large increases in reserves, production, and consumption. The country has experienced an increase in production of oil and gas due to large increases in E&P investment to meet the growing domestic and international demand for oil. Globally, demand for oil is expected to increase 40% during the next 20 years. This increase in demand coupled with projected increases in fuel prices, has driven Brazil to make the investments necessary to increase its production to meet this growing demand. Brazil is ranked as the 7th largest global consumer of oil and the 13th largest producer. In 2010, Brazil’s daily oil consumption reached over 2.6 million barrels of oil per day, increasing almost 10% over the previous year, while average production was approximately 2.2 million barrels daily. The country’s oil production has increased almost 60% over the last decade, while in the first half of 2011 Brazil increased production by 2.2% over 2010.
Natural gas consumption reached 2.6 billion ft3 daily in 2010, increasing 33.8% over 2009 and 122% in the decade. Brazil’s gas production is approximately 1.4 billion ft3 daily, up 63% since the beginning of the decade. Gas reserves have also increased over 92% during the last decade.
The E&P market in Brazil is dominated by Petrobras. However, there are a number of smaller companies who have the concessions to small areas or have entered into partnerships with the larger firms. Only 10 firms hold more than 1% of concession areas with these same ten companies controlling almost 90% of the total concession areas.
Currently, almost half of Brazil’s total oil production comes from 5 fields located offshore in the Campos Basin of Rio de Janeiro. The Roncador, Marlim, Marlim Sul, Marlim Leste, and Barracuda fields, which Petrobras operates, each produced between 100,000 to 350,000 barrels of oil per day in 2010. While the Campos basin continues to produce the majority of Brazil’s oil, the Santos basin is attracting the most attention due to its pre-salt fields. The Santos basin contains some of the largest potential reserves in Brazil and the world, and includes the Franca, Lara, Florim, Lula, and the Guará South fields.
As noted, Petrobras’ 2011-2015 Business Plan calls for USD$ 224.7 billion in spending during that time period. The company’s investment strategy has an aggressive focus on E&P, especially in the pre-salt areas. The investment plan allots USD$ 127.5 billion to boost and revamp Petrobras’ exploration and production activities and that total E&P spending accounts for 57% of Petrobras’ total projected investments during that 4 year business plan. The US$ 224.7 billion will be distributed among 688 current or new projects. There will be 19 very large E&P projects, expected to eventually add 2.3 million barrels of oil daily to Brazil’s production total. Approximately 65% of the company’s capital expenditures investment will go to production development. Petrobras will also drill over 1,000 new offshore wells from 2011-2015 and its total investments will reflect spending 40% of the total for exploration and the other 60% for production development. The company estimates its reserves will double by 2020 and expects to keep their discovery cost for future reserves at less than $2 per barrel. Currently, Petrobras has 123 offshore rigs, of which 78 are fixed and 45 are floating.
OGX, which was started in 2007 by the Brazilian billionaire, Eike Batista, is one of the fastest growing oil companies in Brazil and globally. OGX is staffed with experienced veterans of the oil industry, many of whom previously worked for Petrobras. Although the company is currently only doing exploration, they have cited potential reserves of approximately 10.8 billion barrels of oil equivalent, and are aggressively developing their capabilities to produce the oil from their proven reserves. Their primary field is Waimea, located in the Campos Basin, which will begin production in October of this year. In 2013, the company expects to begin production in their holdings in their Waikiki basin. Their current business plan estimates the company will produce 730,000 barrels of oil equivalent daily and by 2019 the production figure is projected to be 1.4 million. OGX holds a diversified portfolio of oil blocks, both on and offshore. Many of their holdings are in shallow waters and not covered by the rules and regulation regarding participation in the deep water pre-salt areas. The company also holds various oil blocks in Colombia.
In regard to their offshore holdings, OGX has a demand for a total of 48 drilling units. Of these, 23 will be used in the Campos Basin discoveries, including 12 FHP1 vessels 11 WHPs2. In order to further increase their production schedules to see production sooner, the company’s strategy is to contract for their production equipment 2-3 years in advance of their actual need for the equipment.
HRT O&G is a fast growing Brazilian company that has expanded their reserves through aggressive exploration and through a series of mergers and acquisitions. The company’s primary Brazilian operation is located in the Solimões Basin in the Amazon. They have the third largest concession area of all the companies in Brazil, and are scheduled to ramp up their exploration dramatically in the coming years. The company holds a working interest of around 55% in 21 blocks in the Solimões Basin. These blocks may hold potential reserves of between 4 to 6 billion barrels of light crude oil and 10 to 20 trillion feet3 of natural gas.
In addition to the mentioned Brazilian companies, there are also a number of international oil firms operating in Brazil. A number of these firms have their offices for Brazil and Latin America located in the Brazil. Royal Dutch Shell has had a presence in Brazil for a number of years and has recently launched Phase II of their Parque das Conchas project. They are the main operator in this project but they are partnered with Petrobras and OGNC. This field is expected to yield around 100,000 barrels of oil equivalent daily when the project is complete.
Repsol, a Spanish oil company, currently participates in 21 oil blocks in the offshore Campos and Espirito Santos basins. Repsol has allotted US$500 million to investment in Brazil through their Horizon 2014 plan. Furthermore, in December 2010 a Chinese company, Sinopec, bought capital in Repsol Brazil, creating one of the largest private energy companies in Brazil, valued at over USD $17 billion. Repsol and Sinopec will have a 60/40 percent split in the ownership of Repsol’s Brazil holdings. Recently, Repsol sold its distribution arm in Brazil as this disinvestment, allows them, like many other companies, to place an even greater emphasis on the upstream segments of E&P.