While the pre-salt oil exploration area whets the appetite of the world’s largest oil companies and consolidates itself as the main exploration frontier of Brazil, in general the other production poles in the country endure the decline of activity and low attractiveness of investment. Data from the National Petroleum Agency (ANP) show that if it were not for the Santos Basin, where the largest pre-salt discoveries are located, domestic production would end 2017 with its third consecutive year of decline.
The 14th Bidding Round held in September reinforced how large multinationals are focused on the pre-salt: the eight blocks purchased in ultra-deep waters of the Campos Basin, which border the pre-salt polygon and have potential for such discoveries, accounted for 75% of the investment commitments assumed by oil companies in the bidding process, and for 95% of the auction’s signing bonuses.
These were the areas that guaranteed the round’s successful R$3.8 billion revenue, and where the most contested bids of the auction took place, with the presence of companies such as Petrobras and Exxon Mobil, Shell, BP, Total, Repsol and CNOOC.
But outside of the Campos Basis, large multinationals were interested in a few assets in the Espírito Santo Basin (CNOOC and Repsol) and in Sergipe-Alagoas (Exxon) — one of the main bets in deep waters outside of the traditional Campos and Santos axis. Actually, the number of blocks auctioned in the 14th Round (35) was the lowest since the ANP’s 4th Round in 2002, when 21 areas were sold.
Edmar Almeida, professor of the Energy Economics Group of the Federal University of Rio de Janeiro (GEE/UFRJ), points out that the attractiveness of the 14th Round is linked to a specific geological situation, the pre-salt, and that the low interest in the remaining basins is an important yellow light for the oil industry.
According to ANP data, national production of oil and gas has shown an average of 3.3 million barrels of oil equivalent (BOE/day) for the year to date, a 17% increase (or 498,000 BOE/day) compared to 2014. This growth, however, has been basically sustained by the Santos Basin, whose production rose 190% in the period (917,000 BOE/day). Production of traditional basins such as Campos, Sergipe-Alagoas, Potiguar and Recôncavo has been falling year after year and has already shown a reduction of 370,000 BOE/day in the period.
Some of the Brazilian basins have been affected, in particular, by demand. This is the case, for example, of Camamu and Parnaíba, which produce essentially natural gas and whose production depend on the consumer market — in the case of Parnaíba, from the operation of the Eneva thermoelectric plants in Maranhão. But in general, the smaller production seen in other basins outside the pre-salt reflects the natural decline of the fields — which is accentuated when there are no investments in revitalization projects.
The market expects the recovery of investments in mature areas under Petrobras’s assets sales program. The state-owned oil company, which has concentrated its investment in the pre-salt sector recently, may make room for other companies, some smaller and specialized in mature fields, which could invest in the recovery of production of such assets.
Adriano Pires, director of the Brazilian Center for Infrastructure (CBIE), believes that as new oil companies take over the operation of these mature fields, investment will increase quickly.
“Investment in mature fields has faster impacts than exploratory block auctions. As Petrobras has practically abandoned mature fields, I believe that recovery of production in these areas will happen quickly,” he says.
Today, Petrobras has 100 onshore and offshore concessions in divestiture stage. These assets, located in mature areas, account for oil and gas production of 111,000 BOE/day, or 4.2% of the total volume produced by the Brazilian oil company. The company also signed an agreement with Norway’s Statoil late last month to study joint partnerships in the recovery of mature fields in the Campos Basin’s post-salt.
However, a study developed by the GEE/UFRJ, in partnership with the Brazilian Petroleum Institute (IBP), shows that projects outside of the pre-salt area present challenging economics and that, therefore, it is fundamental that the government confronts the barriers that may hinder investments in more mature basins.
This year, for example, ANP approved a 10% to 5% reduction of royalties on the incremental production provided by the revitalization of mature fields. With incentives for investment, the agency sees potential so the recovery factor (amount of recoverable oil within a reserve) of mature areas from the Campos Basin can be increased to 30% from 24%. The ANP estimates that each percentage-point increase in the factor can generate $18 billion in investment and 2.2 billion barrels of reserves.
The UFRJ study also suggests, among other measures, the reduction of risks in environmental licensing; the sharing of transportation and storage infrastructure; and an oil procurement policy for domestic refineries.
Mr. Almeida, with the GEE, emphasizes the importance of dispersing production beyond the pre-salt. For him, the production decline of more mature basins may not affect Brazilian self-sufficiency in oil and gas supply in the short and medium terms, but it prevents the maximization of the economic impacts of the sector’s investments throughout the national territory; and security of supply, guaranteed by the diversification of sources.
Mr. Almeida also stresses the importance of encouraging gas production in shallow waters and offshore, in order to ensure a competitive supply to the market.
“It is worth mentioning that production of natural gas in deep waters presents great challenges due to its costs of disposal and, particularly in the pre-salt, [there are] relevant production costs due to the depth of reservoirs and level of contamination, thus affecting its commerciality”, said Mr. Almeida in an article published in the blog “Infopetro.”
Source: Valor Econômico