Commodity prices may have taken a nosedive, at least for the time being, but industry happenings offshore Brazil give reason for the locals – and plenty of other folks – to pop open the bubbly.
The [PFItemLinkShortcode|id:272|type:standard|anchorText:top three field discoveries worldwide for 2008|cssClass:|title:’08 a Year of Ecstasies and Agonies|PFItemLinkShortcode] – Iara, Jupiter and Guara – are all located offshore southeastern Brazil in the Santos Basin in the vicinity of other intriguing E&P real estate, e.g., the Campos and Espirito Santo basins.
Santos is the locale of the much-publicized Tupi Field discovery announced in 2007 by Brazil’s state-owned Petrobras. Petrobras’ partners in the field include Britain’s BG Group and Portugal’s Galp Energy.
Tupi is estimated to harbor eight billion barrels of recoverable reserves and represents the largest find since the 13-billion-barrel Kashagan Field in Kazakhstan was discovered in 2000. Kashagan, in turn, was the largest field discovery since Prudhoe Bay in Alaska more than 30 years ago.
The Streak Continues
The Santos Basin is proving to be a motherlode of big fields, yet it will be a major challenge to comprehensively evaluate and ultimately produce the hydrocarbons.
This is a deepwater subsalt environment.
Tupi, for instance, was drilled in about 7,000 feet of water, and the field resides another 17,000 feet subsea under a massive salt sheet, which is known to wreak havoc with seismic imaging quality using traditional technology. Extreme pressures and temperatures can be daunting for the drillers.
The good news is that the subsalt crude is generally high quality, i.e., about 30 degrees API, as opposed to Brazil’s usually heavy oil, which averages about 21 degrees, according to AAPG member Bob Fryklund, vice president at Houston-based IHS Energy. The light oil needs less processing and therefore is less expensive to produce.
The Iara discovery in August could hold between three and four billion barrels of oil and is on the same BM-S-11 block as Tupi. In fact, Iara is more than three times as big as anticipated, according to BG Group, which holds seven licenses with partners in the Santos Basin. All of the consortia include Petrobras.
Iara was the sixth consecutive drilling success in this deepwater sub-salt basin since the state-owned oil company and its partners began their drilling program in 2005, according to Petrobras.
The Jupiter well drilled by Petrobras east of Tupi in Block BM-S-24 confirmed the existence of a large natural gas and light-oil sub-salt field.
The Jupiter reservoir has a higher CO2 content than expected, according to Galp, which holds a 20 percent stake in the block. The company noted this gas will be re-injected to improve the recovery factor.
Regarding the size of Jupiter, Petrobras reported the structure’s dimensions could be similar to Tupi.
The Guara discovery well drilled by Petrobras with partners BG and Repsol in the BM-S-9 concession area is also set to figure prominently in extending the potential of this significant hydrocarbon province. The well is in the same block as the Carioca discovery that reportedly may contain as much as 33 MMbo. In fact, Guara and Carioca conceivably could be the same structure.
A comment by BG chief executive Frank Chapman suggests discoveries reported thus far in the Santos Basin could be only a prelude to what’s to come.
“There remain in BG Group’s portfolio a number of significant untested exploration prospects in the Santos pre-salt play,” Chapman said, “as well as potential upside from appraisal of existing discoveries.”
An Expensive Proposition
It’s been said this entire region could contain a humongous 70 Bboe – but don’t look for production to come online with any sense of speed.
A couple of months ago, the BG Group stated that output from Tupi, Guara and Iara should hit 300,000 boe/d by 2012.
However, the impact of the ongoing near-breathtaking decline in oil prices along with cratering demand worldwide remains to be seen. Earlier-established timetables for E&P projects far and wide are being altered these days.
Santos Basin sub-salt wells will not only be tough drilling, they’re expensive – and the end product needs a market.
Fryklund said the initial well at Tupi cost about $240 million and required a year to drill – not an appealing scenario if commodity prices are in the tank.
Still, development of such enormous reserves is a forward-looking endeavor, and if anyone can make it work, it should be Petrobras. Fryklund noted the company historically has done most of the deepwater drilling in this entire region as compared to the Gulf of Mexico where several companies are experienced in the deepwater, including the subsalt environment.
There appears to be no lack of confidence that the play will progress given that Petrobras is poised to invest $400 billion over the next 10 years to develop its new offshore fields, according to the National Petroleum Agency.
There also is a growing number of outsiders knocking on the door with huge sums of money to contribute in return for a piece of the action.
China, for instance, reportedly wants to chip in $10 billion to help develop the new deepwater finds. Even the United Arab Emirates are said to want to establish a presence in the play.
In the past, these financial dealings might not have been an option as Petrobras wouldn’t have been interested in money – but that’s changed in today’s playing field, Fryklund noted.
“With the huge success and potential (of these discoveries), they do need help,” he said. “With the credit markets the way they are, they need to look for alternate financing, so the Chinese and other NOCs with lots of cash can come in through that back door.”
This is a far cry from chasing money “hat in hand,” which is rapidly becoming a kind of lifestyle for companies of various kinds these days.
“These huge finds are a good reason to need money,” Fryklund emphasized.
It is noteworthy that U.S.-based companies also are playing a role in Brazil’s deepwater subsalt action.
A recent Anadarko-operated discovery well in the Campos Basin included Devon and other partners, and Fryklund noted ExxonMobil is drilling a well in the Santos Basin that currently is designated a tight-hole. Hess also has interests in the play.