Since Petrobras and its partners reported finding the large Tupi field in 2006, excitement has reigned over Brazil's pre-salt reserves. Opportunities exist, even in a changing regulatory environment: the Brazilian congress is poised to consider four bills that will alter the way the business is done in the pre-salt region. Jennifer Pallanich looks at the fast-changing Brazilian deepwater and pre-salt regions.
A changing regulatory environment and fierce competition for resources have made the petroleum story in Brazil an interesting one to watch unfold. As of mid-May, the Brazilian congress was still considering four bills that would result in: Petrobras becoming the operator with at least 30% interest in every new pre-salt field and establish the production sharing contract (PSC) as the standard deal for pre-salt blocks; create the Pre-Sal Petroleo to represent the government in the PSCs and manage profit oil commercialization; create a social fund where the government's profit oil would be invested; and authorize Petrobras to capitalize to carry out its pre-salt efforts. The final bill would also authorize the onerous assignment by the state of a maximum of 5 billion boe to Petrobras.
Antonio Almeida, the Brazilian secretary for petroleum, natural gas and renewable fuels, said at the Offshore Technology Conference in Houston last month: ‘Current concession agreements will be maintained.'
As of the writing of this report, the four bills had passed through the Brazilian house of representatives and lacked only a nod from the Brazilian senate, where the bills have been under discussion since the beginning of the year. Almeida noted the Brazilian government had requested urgency on the bills and that the senate must vote on them before they can vote on any other bill. Should the senate change the bills, they must return to the house for further consideration.
‘We expect these bills to be approved by the end of next week,' he said at OTC. That time frame passed without passage of the bills by the senate. Petrobras CEO Sergio Gabrielli said during OTC he hoped the government would pass the bills before the end of June, as the company plans to carry out capitalization with a public offering by end 2Q 2010.
Alex Chequer, a partner at Mayer Brown, put the delay in passage of the series of petroleum bills into context. ‘It has been a fight between the government and the opposition,' he said, noting the presidential election in October has caused some parts of the government – such as the house of representatives, where the government holds a majority of seats – to push for approval while the senate – where the government lacks a majority – has stalled. ‘This is the position we see in congress, the opposition trying to delay and the government trying to push.'
The urgency label was added to the four bills in August 2009. ‘Almost one year later, the guys are fighting very hard in the congress,' he said.
He said the existing petroleum law ‘already gives to the government enough control of the country's resources'. The series of bills, he said, needs to be more thoughtful. ‘I have the hope that they will not approve anything this year,' Chequer added.
If approved, he said, the ‘important thing is there is still stability' in that existing arrangements will be honored and the changes will only affect new licenses. Also, Chequer predicts that if the senate approves the PSA model for ‘strategic' areas, it will ultimately be decided by Brazil's supreme court.
He said during the 2010 Global Energy Issues forum in Houston in mid-May that the government could approve the capitalization bill in the next couple of weeks. Chequer noted Petrobras has money to invest, but that it must invest in many projects. The capitalization will enable Petrobras ‘to meet the commitments they have with the current projects, not the new ones' like the additional pre-salt, he said. If Petrobras moves forward with the offering – expected to be in the region of $50 billion – it will be the largest offering on the books, he added.
Chequer has some concerns about the mandatory minimum 30% interest Petrobras must hold in pre-salt reserves under one of the petroleum bills. ‘It may be a trap for Petrobras, this minimum participating interest of 30%, because they may not have control,' he said. One scenario, he said, could be a Far East company seeking access and offering a premium for access to the pre-salt region, and it may be more than Petrobras wants to pay for the block in question. ‘It's not clear in the law, but the interpretation, yes, they would have to participate. At end of the day they'd have to commit 30%. Everybody believes the bid for these areas will be huge.'
Pre-salt promise
As of 2013, Petrobras expects its pre-salt oil output to be 152,000b/d and that of its partners to be 62,000b/d for a total of 219,000b/d. In 2015, those numbers jump to 422,000b/d for Petrobras, 160,000b/d for its partners, and a total of 582,000b/d. The numbers get even higher for 2017, with Petrobras projecting its pre-salt production will be 873,000b/d and its partners to have 463,000b/d for a total of 1.3 million b/d. In 2020, Petrobras expects to achieve a pre-salt output of nearly 1.2 million b/d on its own, along with 632,000b/d by its partners for a total pre-salt output of 1.8 million b/d.
The company is pouring money into projects and expects to spend $28.9 billion on its total pre-salt capex in 2009-2013, part of a larger earmarked sum of $111.4 billion for the period 2009-2020. Of that, most is set aside for the Santos pre-salt region, although Espirito Santo pre-salt and post-salt are also included in those figures, according to the operator.
Within three years of discovering the largest oil reserves in years at Tupi – estimated to hold between 5 and 8 billion boe of recoverables – Petrobras and partners BG Group and Galp Energia began production at the Tupi field in the Santos Basin in about 2100m of water via an extended well test to the FPSO Cidade de São Vicente. With Tupi online for about 10 months, said Nelson Silva, BG Brazil president, at OTC, the field had produced over 5 million barrels. But it remains difficult to pin down the size of the find. Volumes in the pre-salt reservoirs are uncertain, he noted, not just about how much is in the ground but what can be recovered.
‘We still cannot answer questions about reserves. Tupi's a good example,' Silva said, noting the field's range of estimated recoverables of 5-8 billion boe ‘is a very wide range'.
Carrying out an EWT at complex fields is one of Petrobras' preferred methods of studying the reservoirs and planning how to best extract the field's resources. The EWT went online in May 2009 producing from the Tupi Sul well and shut down shortly thereafter for about two months to replace a subsea well. Petrobras and partners plan to bring the Tupi pilot project onstream in 4Q 2010 to the FPSO Cidade de Angra dos Reis MV22. The Tupi I pilot expansion is expected to begin production in 2013. The Guara and Iara pilots are also slated to go onstream in 2012 and 2013. Iara and Tupi are in the same concession while the Guara find is in a neighboring area in the Santos Basin.
But Tupi and Guara aren't the only pre-salt stories offshore Brazil. Also this year, Petrobras aims to bring online its Cachalote, Balaeia Franca and Baleia Ana fields in block BC-60 online, and the Baleia Azul field, also in block BC-60, in 2012.
The Tupi field is in what Petrobras refers to as phase 0, or the information acquisition phase, which features the EWT, the pilot projects and the appraisal wells. During this phase, Petrobras aims to delimit the area and analyze reservoir flow, among other activities. In definitive development, or phases 1A and 1B, Petrobras will bring production units onstream.
Phase 1A projects are expected to include the chartering of two additional pilot FPSOs in 2013/14 for oil production of 120,000b/d and gas compression of 5mmcm/d, as well as eight FPSOs in 2015/16. Those FPSOs would see the construction of the hulls in the Rio Grande shipyard, all as identical units manufactured in a series.
Phase 1B, from 2017 on, would see a significant production increase, accelerated innovation and massive use of new technologies specially tailored for pre-salt conditions.
Speaking of technology
Schlumberger has been investing in pre-salt R&D in Brazil and expects to inaugurate its Research & GeoScience Center in Rio de Janeiro in August. The company's big push through the center will be reservoir characterization.
‘We will be joining the scientific park which houses Universidade Federal do Rio de Janeiro (UFRJ) and Petrobras' R&D center, Cenpes,' says Joao Felix, marketing manager for Latin America at Schlumberger. The center will focus on R&D for pre-salt and carbonates, seismic data interpretation and software development. Traditionally, the company has developed its geosciences software in Houston, Oslo and London. ‘According to the public announcements, the reserves are there, and the oil quality that is seen from the first few wells has been good. But the investment is huge,' Felix says. ‘When a pre-salt well costs up to $150 million, you want to make sure you get it right.'
Schlumberger's center in Rio will collaborate with the company's other R&D facilities around the world. ‘We're counting on the GeoScience Center to give us the local flavor,' Felix says. ‘Local content includes gray matter.' And the company is working to position itself in developing its the local talent.
Another Schlumberger investment in Brazil is its new operations base in Macae, after outgrowing its previous facilities. The new center is 130,000m2, and it consolidates four bases into two sites. The service company anticipates beginning operations at the new Macae base later this year.
Just based on known discoveries, says Mauricio Figueiredo, Baker Hughes' VP for Brazil, the Brazilian market holds tremendous opportunities through 2025. ‘We have huge activity for at least 15 years.'
Service company Baker Hughes is also concentrating on technologies intended to address pre-salt needs. One of Baker Hughes' solutions for drilling optimization in pre-salt combines its AutoTrak, ThruTrak and CoPilot tools. The tool lineup ‘improves parameters at the bit', says Figueiredo. ‘You can actually make sure what weight on bit you have and you can also minimize the vibration.' Using that combination, he adds, Baker Hughes was able to improve drilling time on a Petrobras well at Tupi by 37% over a comparable well. The company, he says, is striving to design bits to improve the performance of the whole BHA.
This month, Baker Hughes is slated to deliver the first of eight intelligent well systems for Tupi and wrap up delivery by year's end.
‘We have a broad range of initiatives with Petrobras, and we have new projects we expect to add as we merge with BJ Services, and the two begin working together. I hope, pretty soon,' Figueiredo says.
Extracting the pre-salt reserves will take some serious technology, and a number of companies are investing in setting up research centers. Baker Hughes is no exception. The company announced in June 2009 that it would spend about $56 million over four years on its Rio Technology Center being built by Cenpes in Rio de Janeiro. Construction has begun, and the center should be functional by the end of the year. Baker Hughes intends to carry out research on reservoir characterization, drilling optimization and completion and production technologies to lower drilling and wellbore construction costs as well as optimize production and recovery.
With all the work that Petrobras and other operators working in Brazil envision carrying out between now and 2020, resources will be tight. Petrobras' Gabrielli has mentioned concern about the tight supply chain on a number of occasions. It is important to focus on ‘the hubs that we must develop for our people and goods 300km from our coastline'. For the pre-salt, he added while speaking to a Houston audience earlier this year, ‘the main challenge that we have is much more on logistics, on the optimization of the knowledge we have'. The opportunities in pre-salt, he said, are big, but they also require a new hub for suppliers. ‘We believe the most important constraint that we may have is in the supply chain.'
Other companies are also concerned about the tightness in the Brazilian supply chain.
‘There is a recognized shortage of boats and helicopters to support offshore operations in Brazil,' says Tony Seeliger, Pride's South America managing director.
‘We suffer along with them.' Pride is working with its clients on logistics, and other companies are building more boats and helicopters to meet the demand. ‘But it's going to be a while. And the rigs are still coming.' That's only going to further constrain a tight market, he believes.
With no spare capacity in logistics, rigs need higher capacities. ‘You need to be organized and able to maintain more equipment onboard because of the uncertainty in knowing when the next boat will be made available,' Seeliger says.
Concern about tightness in resources doesn't just apply for equipment and floating or drilling assets, but also people. Activity offshore Brazil has picked up noticeably in the last two years, Seeliger notes. Pride has seven rigs – four deepwater semis and three mid-water semis – under long-term contract to Petrobras. Additionally, Pride has one mid-water semi working for OGX offshore Brazil and has recently added another contract to supply a second mid-water semi to OGX, likely beginning in 3Q 2010. Finding qualified, competent and confident personnel to work on the rigs, he adds, has been the biggest challenge. ‘As that activity picked up, the modus operandi for crewing up a rig was getting what you could from your own base and poaching . . . that is the most counterproductive thing we can do to ourselves,' he says. Such actions, Seeliger adds, can affect safety, operation performance and morale as well as increase costs.
The drilling rig company is drawing up plans for a training center in Macae. ‘We're going to develop people rather than poach,' Seeliger says. The new center will take about a year to build, once the scope is approved, but it's part of a long-term solution.
Other resources
Last year, Petrobras saw several fields go online: Jabuti, the Chevron-operated Frade, the Shell-operated BC-10 and Marlim Sul P-51. The Marlim Sul project was an expansion at an existing field, and Petrobras expects further production from the field in 2011 via the P-56. That same year, the Jubarte P-57 is slated to come online. Existing field Roncador will see increased output in 2013 via the P-62 and P-55, while the Papa Terra field is expected to go onstream the same year to the P-61 and P-63 (OE April).
While Frade went onstream last year, said Chevron Latin America managing director Wes Lohec at OTC, the field is ramping up to reach peak production next year.
The supermajor is also working with Petrobras to develop the Papa Terra field, which will feature a TLWP to produce the Cretaceous reservoir and an FPSO to produce the Eocene reservoir. The solution is ‘a bit of a complex development plan and it has taken many years to arrive at this', he said.
Petrobras also plans to bring onstream two gas fields this year – Mexilhao to a fixed platform and Urugua Tambau to a Modec-supplied FPSO – with the Canapu and Jurua Aracanga fields slated to begin production the following year.
Brazil's Round 11 is expected to be open for bidding later this year, and it will likely include both on- and offshore blocks.OE
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