Grupo de Economia da Energia

Exploration and production of oil and gas in deep waters: evolution and trends – Part II

In natural gas, oil on 24/10/2011 at 00:50

By Thales Viegas

Our last article concerning E&P in deep waters attempted to place this industry segment in the deepest part of Global Oil Industry (GOI). This approach aims to analyze the oil activities in Brazil carried out in great depths. It demonstrates the high rate of exploitation success and leadership of the country in regard to the greatest discoveries of the decade. It debates the virtuous circle on new discoveries. It considers the Brazilian remaining potential and high degree of attractiveness, in general, and the Pre-salt province, in particular. It highlights that the magnitude of reservoirs and quality of hydrocarbons found are relevant stimuli for international oil companies.

Pre-salt has been showing one of the largest oil structures in the world. In Brazil, Pre-salt pushed up the success rate in drilling wells. Table 1 shows the extraordinary success of the drilling in the Pre-salt, in the Lula field (former Tupi), in the Santos Basin. Pre-salt province’ success average is greater than world’s one. This indicates that the exploration risk in this environment has been low in the Pre-salt in relation to the alternatives around the world. By the early 2000s the national average was consistent with average rate of success in the world, which has ranged around 25%.

Table 1 – Exploratory Success Rate in 2010

Tupi/Lula

Pre-salt Brazil

Petrobras

World

100%

87%

57%

25%


Source: ANP and Petrobras (Prepared by us)

The result is found in new discoveries, which fed back the exploratory campaigns. The first incentive is based on high price levels of oil. The second one is based on access to information, low cost, regarding the high probability of finding hydrocarbons in the region. Given the high risk activity, agents move strategically, even as “free riders”, i.e., they expect another agent to discovery, and then acquire the rights to explore, start investing and performing exploratory campaigns in surrounding areas. This is a common practice in the industry and, in Brazil, Petrobras tends to be the first to move, since it has expertise on the geological structure of the Brazilian coast.

From this mechanism, there is virtuous circle, where successful exploratory campaigns encourage and facilitate new discoveries in other nearby regions. The limit of this process can be achieved primarily by five elements: i) physical depletion of resources, ii) insufficient knowledge of the geological formations, iii) lack of capital to invest; iv) lack of technological or economic viability for projects; v) regulatory barriers. Undoubtedly, more knowledge, technology and capital will be essential to the efficient exploitation of all potential resources. However, so far the above factors do not constitute insurmountable obstacles, which can contain high pace of E&P campaigns in Brazil.

According to ANP’s data, in six years the number of oil and gas discoveries has doubled in Brazil. The total hydrocarbon indications reported by oil companies was 75 in 2005 and reached 149 in 2010. Over the last decade, more than 960 discoveries in Brazil have been performed. Although the data concerning the indications does not express the existence of marketable reserves, they illustrate the level of activity in the sector, which is booming since the last five years in the country.

The Brazilian case is peculiar, so calls such attention. While the country has been making important discoveries, GOI, in its entirety, has found difficult to make major discoveries of oil. An explanation based on historical and geological aspects related to the industry itself indicates that large fields are found and exploited first. In general, they arouse greater interest of the companies before the tendency to be more profitable.

However, technological advances and exploitation toward deeper waters allowed a sort of knowledge revolution (about geological formations such as the pre-salt) and expertise in operating in these environments, which would have opened a new world of opportunities in the oil industry. It is not clear whether Brazilian success can be employed in African countries, for example, where the origin of sedimentary basins would be similar to the Brazilian coast. In Brazil, the industry hopes for a potential of discovering large reservoirs in the country.

In the technology and operational field Brazil played a leading role. We have to mention the Petrobras’s expertise about it. Thus, in the last decade, Brazil was the leading country of the great discoveries of hydrocarbons. Seven out of the top ten discoveries in deep waters were carried out in Brazil. Eleven out of the thirty-five largest discoveries in 2001-2011, all containing more than one billion barrels, were held in Brazil. Considering the total volume of oil and gas in these fields, Brazil would have discovered the equivalent of one third of the total resources in that ranking, totaling 35 billion barrels of oil equivalent. Moreover, the oil companies OGX and BG are also have fields in the country with a volume that may exceed one billion barrels each.

Table 2 informs some of the great discoveries of hydrocarbons in the last decade. We call attention to the strong presence of the fields in Brazil, where the main oil reserves in the period were found, most of them in deep waters.

Table 2 – Major Discoveries of Hydrocarbons in the 2000s

Country

Field

Discovery

Operator

Estimated Reserves

Brazil

Libra

2010

Petrobras

3.7-15 billion boe

Brazil

Lula

2006

Petrobras

5-8 billion boe

Brazil

Júpter

2008

Petrobras

Up to 8 billion boe

Brazil

Franco

2010

Petrobras

4.5 billion boe

Brazil

Iara

2008

Petrobras

3-4 billion boe

Brazil

Jubarte

2001

Petrobras

1.77 billion boe

Iran

Ferdowsi

2010

POGC

1.7 million boe

Brazil

Mexilhão

2001

Petrobras

227 Bi/m3 Gas and 200 million boe

Iraq

Shaikan

2009

G.Keystone

1.5 million boe

Ghana

Jubilee

2007

Tullow

1.5 billion boe

China

Nanpu

2007

PetroChina

1.18 million boe

Brazil

Guará

2008

Petrobras

1.1-2 million boe

Nigeria

B. Sothwest

2001

Shell

1 billion boe

Source: Rigzone, ANP and Petrobras (Prepared by us)

Based on this history, which involves high levels of exploration success and large amounts of resources found, Brazil has become the most attractive country in the world in relation to the activity. In fact, the resources already discovered in the Pre-salt are only a portion of the potential of Brazilian sedimentary basins in the pre-salt layer. There was bidding process for only 40 km out of 150 square kilometers known as the Pre-salt of Santos Basin. Among the various estimates already published, one of widely used by agents operating in Brazil shows that the magnitude of the total resources of the Pre-salt would be 100 billion barrels of oil equivalent.

Regardless of the exact volume, what is important is that long time ago was impossible to discover large volumes of oil and gas in a new exploratory frontier. The potential of the Pre-salt polygon is very large. The dimensions of the reservoirs found were surprising, even in the period of inertia, which is characterized by the initial stage of learning curve, when the new frontier was almost unknown. It is known that many technical advances have been achieved, but many others are desired, in order to take advantages of these resources.

Currently, the Brazilian Atlantic basin is the largest offshore laboratory research and development (R&D) of the world. As knowledge advances on these formations and new technologies are added, the following tend to increase: i) discoveries, ii) productivity of wells, iii) oil recovery factor, iv) profitability of production, and v) ability to mitigate risks and possible environmental impacts.

Exploratory activities are reaching ever greater depths. They are being carried out even in mature basins. For example, Petrobras has been drilling to find new reserves below the fields in decline, in the Campos Basin. The main advantage of this project is to accelerate the production to take advantage of infrastructure already in place. The company has already achieved success in this campaign. The greatest discovery in the Pre-salt, in Campos Basin, was 3.5 billion barrels of recoverable made by a consortium operated by Repsol (Spanish oil company), involving Petrobras. These results further extend the horizons of exploration opportunities in the country.

Thus, the exploratory activity in Brazil has consolidated as the most attractive in the world. The high success rate of drilling wildcat wells and the high volumes of resources found are the basis of this reference condition. These conditions allow finding the cost of oil to be even lower than findings in shallow waters, in regions where the exploratory success is lesser. The operational success of these activities in great depths contributes to preserve favorable the regulatory environment. Political stability and economic growth also attract interest and stimulate investments in the country.

In this scenario, Brazil qualifies for the investment and discoveries occur at an accelerated pace, whether they are made in the post-salt environment, subject to concession or pre-salt provincial (or strategic areas), under production sharing agreement. Deep waters activities are moving on. They should be responsible for significant portions of the addition of production in the world supply in the coming years.

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