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

By Thales Viegas

The first two articles about E&P in deep waters (*) characterized this activity at the global and domestic levels. Aspects such as the importance and attractiveness of this business can be identified as factors that contributed to increase investments, offshore discoveries and production in deep waters.

This article will discuss the process of technological learning and investments in research and development (R&D) made by oil companies. The goal is to encourage attention about the emergence and consolidation of new technologies. It is also demonstrates that increased innovative efforts by oil companies indicates an increasing search for technological ability, in order to counterbalance rising costs.

However, the maturity of a set of technologies and their domain by agents is a process that requires practice and time. In this context, we have to analyze some limits and technological opportunities arose during the development of skills for operating in deep waters, especially in the case of Pre-salt.

Pre-salt: an obstacle to renewable energy?

By Edmar de Almeida 

Recent accidents involving oil spillage in the Gulf of Mexico and now in the Campos Basin raise an issue on Pre-salt exploitation in Brazil: Would Brazil going through an irrelevant adventure with the imminence of substituting renewable energy sources by oil?

This question is linked to the idea that oil is a former energy and there is no worth to mobilize society’s resources in a business doomed to shrink and disappear quickly. This idea has no support nowadays.

Prediction studies of global energy matrix show oil and natural gas still prevailing in long-term horizon. According to the International Energy Agency, these energy sources, together with other fossil fuels, will account for 75% of global energy matrix in 2035, the most optimistic scenario for renewable energies.

This type of prediction is confirmed by other government agencies and major energy companies worldwide. We can say that oil and gas will keep a prominent role in the long transition to a decarbonized economy. Thus, Pre-salt is a significant comparative advantage for Brazil. Our country could take a leading role in the energy transition, not only because of its large endowment of oil and gas, but also because of its significant potential for renewable resources.

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

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%.

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

By Thales Viegas

The offshore exploration and production of hydrocarbons is not new. The first activities would have occurred even at the beginning of last century, in the Gulf of Mexico, USA. They were performed from the adaptation of equipment and onshore exploration techniques. Since then, many technology and operating changes in the oil and gas upstream have occurred. And then, many features previously considered inaccessible or uneconomical have become the object of interest and economically recoverable reserves.

This article will address the potential for discovering resources and the level of reserves in deep waters.

Effects of high oil prices: the accumulation of oil revenues in the OPEC countries

By Helder Queiroz*

In the article “The crisis in the Arab world and price of oil“ we highlighted that the volatility of prices would remain as a consequence of the sources of uncertainty. These are associated with political instability in the Arab countries and the need for restoration of geopolitical relations established between producing and oil importing countries.

At the end of the first quarter of 2011, some of the consequences of the conditions of volatility and high prices in international oil market must be reviewed.

Three high-interdependent aspects should be highlighted and qualified.

Prices, costs and new regulatory framework for oil

By Thales Viegas

The production sharing agreement, in Brazil, changes significantly the role of costs and prices in oil activity regulation. First, costs have become the decisive factor for determining the surplus oil to be shared. Second, the price of oil may not only be a reference to the monetization of oil for each agent involved, that is, the price which pays the oil purchased by agent. It can also influence the magnitude of the sharing, if the price is a variable in the calculation that defines the percentage of surplus for the government. In some countries, to share profit oil with the government depends upon the price of oil. That is, the higher the price of oil, the greater the government’s portion for the profit oil.

By deduction, the production sharing agreement may fix the involvement of government in production, but also can allow it to alternate according to contract items previously agreed. Given the centrality of price and cost variables, the following analyses attempt to explain the interdependent dynamics of these two items.

The crisis in the Arab world and price of oil

By Helder Queiroz

The current political crisis in the Arab world is already causing upheavals in the international oil market. After the worsening crisis in Libya, an OPEC member with production around 1.5 million barrels, the international prices of crude oil have risen significantly in recent days, reaching the level of US$ 108 per barrel for Brent crude.

The degree of uncertainty in the markets and the resulting volatility of prices tend to increase in the coming days, due to unpredictability for the political and economic consequences in Libya, but especially on possible developments in other OPEC countries.

Thus, the greatest fear of the agents operating in that market is about the possibility of disruption of supply. Under these conditions of uncertainty, the oil futures market is more active, multiplying significantly the number of transactions, causing an upward trend. This aspect is not particularly recent. In mid-2008, prices reached the level of US$ 145 and dropped to almost half that value at the end of that year.

Brazil: The Pre-salt and State control

By Ronaldo Bicalho

The ongoing changes in the institutional framework related to oil exploration in the Pre-salt includes an overview of the strategic role to be played by the Brazilian petroleum sector different from that one defined previously, both with respect to the newly global Brazilian insertion and supporting conditions of such insertion.

The core of this change is focused exactly on expansion of the State control over the exploitation of the Pre-salt resources, in order to achieve maximum benefits from such exploitation, under a long-term strategic perspective that transcends the boundaries of the oil industry.

Thus, changes related to the institutional framework of the Brazilian oil sector is not a merely discussion about the advantages and disadvantages of exploitation systems – concession agreement versus production sharing agreement -; advantages and disadvantages of Petrobras’ interest in all consortia; advantages and disadvantages of Transfer of Rights and Petrobras’ capitalization; advantages and disadvantages of establishing a new state-owned company; and so on.

The accident in the Gulf of Mexico and its consequences for the World Oil Industry

By Helder Queiroz

Over the last decade, the global oil industry (GOI) was strongly affected by the changes observed: i) asset configuration due to transactions of mergers and acquisitions; ii) market conditions, with changes in supply and demand structures; and iii) regulatory frameworks of the main producing countries.

Over the past five years, in particular, there was a major change in economic conditions of GOI: high international prices that reached the level of US$ 145 per barrel, after a long period of relatively low prices (below US$ 28 in 1986-1998).

Despite the hard drop recorded in July 2008 causing a new price level around US$ 60-80 per barrel and the reduction in global demand in 2009 due to the downturn in world economic activity, factors of uncertainty are present regarding the future expansion of production capacity.