Brazilians have good reason to be in a celebratory mood these days – and not just because Rio de Janeiro was selected to host the 2016 Summer Olympics.
That selection provided just one more occasion to bask in the glow of a spotlight of sorts, which has been focused on the country for the last few years.
The world is watching as Brazil begins to tap into huge oil depostis in the deep offshore pre-salt, or sub-salt, horizons.
It’s all about oil.
Some folks have gotten so carried away in their exuberance over the vast potential for new oil production they’re calling Brazil the next Saudi Arabia.
Pre-salt excitement kicked off in 2007, when the country’s state-owned Petrobras and partners BG Group of Britain and Portugal’s Galp Energy announced results for the second well at the Tupi Field offshore southeastern Brazil in the Santos Basin.
Test results for the Petrobras-operated well at Tupi indicated estimated reserves of as much as eight billion barrels of oil equivalent for the field.
To put this into perspective, the entire country’s reserves tallied 12 billion barrels at the time of the discovery.
Sweet Smell of Success
Tupi was a particular stunner in that it represented the largest find worldwide since the discovery of the 13 billion barrel Kashagan Field in 2000 in Kazakhstan.
The Tupi find was sweet for many reasons, including the type of crude.
“The sub-salt crude is higher quality, about 30-degree API,” said Caio Carvalhal, research associate at Cambridge Energy Research Associates in Brazil. “Brazil has very heavy oil on average, about 16-degree to 17-degree.”
This is quite meaningful given that the light oil needs less processing and, therefore, is less expensive to produce, noted AAPG member Bob Fryklund, vice president at Houston-based IHS Energy.
Petrobras is reported to have recently begun refining its first crude oil supply from Tupi, located about 500 kilometers off Brazil’s southeast coast.
Shortly after the Tupi discovery announcement, Carvalhal noted there could be huge reserves in the sub-salt offshore Brazil under the Campos, Santos and Espirito Santo basins.
“The sub-salt could be a whole new play beneath the most prolific basins in the Brazil region,” he said, “and one with better quality oil.”
In the bustling southeastern offshore area of the play, it’s the Santos Basin that appears to rein as the hot spot. The basin was the site of the top three discoveries worldwide in 2008 – Iara, Jupiter and Guara.
Deep Targets, Big Bucks
The trinity of Campos, Santos and Espirito Santo is where most everyone has been playing so far, Fryklund said, but other areas are ripe for exploration.
Geologists have said the pre-salt environment could extend the length of Brazil’s Atlantic coast.
This may be proven out sooner rather than later given that Petrobras announced it is researching possible ultra-deepwater oil prospects off the coast of northeastern Brazil. Although the company recently said it would postpone drilling to the pre-salt in the Jequitinhonha Basin offshore Bahia State, there are reports a well will penetrate this horizon by year end. Petrobras made a prior discovery there, but it didn’t go deep enough to reach pre-salt, Fryklund said.
Anadarko Petroleum Corp. was the first independent operator to hit pre-salt oil in the burgeoning play when it made a discovery in 2008 in the Campos Basin. The company had been honing its expertise in this type of environment in various areas for a number of years, including 15 years in the Gulf of Mexico.
The Campos discovery included pre-salt-experienced Devon Energy and other partners.
Brazil’s overall pre-salt resource reportedly may hold as much as 80 billion barrels of oil equivalent. It’s an impressive number, but tapping into the target reservoirs is fraught with hazards.
For starters, there’s the challenge of drilling in the ultra-deepwater and taking the drill bit perhaps as much as a few miles beneath the seabed to penetrate a massive salt sheet, where extreme pressures and temperatures present major challenges for the operator and unwelcome surprises are not uncommon. Additionally, the salt presents a formidable deterrent to acquiring respectable quality seismic images.
It’s dicey work overall, and it carries a big price tag.
Tupi provides a good example of what the operators face.
Water depth there is about 7,000 feet, and the field occurs another 17,000 feet subsea under a massive salt sheet. In addition to the daunting technological challenges, Carvalhal noted the initial well at Tupi cost about $240 million and required a year to drill.
Despite the potential for huge finds, they can be elusive.
ExxonMobil recently drilled a dry appraisal well on the Guarani prospect in the Santos Basin for a reported cost of $150 million. But it takes a bigger disappointment to scare off the big guys, so look for a third well to go down once the results of the drilling program are evaluated. Hess Corp. and Petrobras own a percentage of the block where the prospect is located.
Room to Grow
One downside of the pre-salt play is the considerable shadow it has cast over other quite promising hydrocarbon activity in Brazil, which is the least drilled country in the world, Fryklund noted.
There’s considerable potential both in frontier basins onshore for gas as well as traditional turbidite systems all along the coast, he said.
This is fortuitous given that Brazil is South America’s largest economy, and it’s the scene of some highly industrial areas that require a lot of energy.
“There’s a good bit of onshore activity, and some of the bigger companies are starting to look at some of the high-risk plays,” said Tom Liskey, regional manager for Bolivia, Brazil and Paraguay at IHS. “For instance, BG, Shell and Petrobras are looking at gas potential.”
An onshore natural gas discovery made by Petrobras and Starfish Oil & Gas SA in the Reconcavo Basin was announced recently. Also, the state-controlled oil company teamed with Galp to tap into an onshore oil deposit in the Potiguar Basin.
Petrobras recently met success drilling in the post-salt layer offshore in the Campos Basin where it discovered oil in carbonate reservoirs. Preliminary analyses reportedly indicate estimated recoverable volumes of 280 million barrels of light oil.
Brazilian company OGX accounced mid-October that a recent discovery in the offshore Campos Basin post-salt may hold as much as 1.5 billion barrels of oil.
Who Gets What?
Going forward, there are enormous challenges to developing the country’s reserves, particularly in the relatively treacherous pre-salt environment. Yet if anyone can make it work, it should be Petrobras. Fryklund noted the company historically has done most of the deepwater drilling in the entire region.
Currently, there is an ongoing debate about changing the oil regulatory framework in Brazil. Instead of royalty payments, the government reportedly wants a minimum 50 percent share of profit oil, which is the oil produced after discounting expenses from development of a field.
Also, plans reportedly ensure Petrobras as sole operator of future concessions and the company has at least 30 percent of new concessions.
Whatever the outcome, it’s unlikely to deter the IOCs and others who are knocking on the door with plenty of cash in their collective pockets, ready to make a go of it on their own or team with Petrobras, which could emerge from the regulatory hassle as the sole operator in the pre-salt play.
For now, it’s a waiting game.
“The international companies and Brazilian independents are kind of in a timeout period because they’re waiting for the rules,” Fryklund said. “There are no bid rounds right now.”
Relative to blocks outside the pre-salt, Fryklund noted the ANP – Brazil’s national petroleum agency – probably will continue with bids the same as before, most likely with similar rules.