Crude reserves have declined steadily in recent years, with mature Campos and pre-salt reservoirs showing obvious exhaustion. Despite crude output increasing last year, Brazil’s pre-salt play is losing its commercial appeal, and demand for acreage has declined significantly. Exploration in untested regions is needed to replace reserves and maintain output.
EUGENE GERDEN, Contributing Editor
Brazil is focused on accelerating its oil production over the next four years. This will be achieved primarily by making billion-dollar investments in the sector over the next four years. According to the Brazil National Agency for Petroleum, Natural Gas and Biofuels (ANP), the volume of investments will amount to $103 billion, part of which will also be invested in the country’s gas sector. Most of these funds will be invested in major Brazilian oil-producing areas, including the pre-salt Santos and Campos basins, the most important discoveries in Brazil since the 2000s, Fig. 1.
The Santos and Campos basins will account for 61% and 28% of the overall investments, respectively. These capital projects will enable the country to increase daily average production up to 4.195 MMbbl. The plan calls for drilling approximately 4,000 new oil wells.
Mature fields still delivering. Petrobras posted good operating results during fourth-quarter 2023. The company's average production of oil, natural gas liquids (NGLs) and natural gas reached 2.94 MMboed in the period, a 2% increase compared to third-quarter 2023. The result was achieved, due to the ramp-ups of platforms P-71 in the Itapu field, FPSO Almirante Barroso in Búzios field and FPSOs Anna Nery and Anita Garibaldi in Marlim and Voador fields. Four new wells from complementary Campos and Santos basin projects also contributed. "The fourth quarter of 2023 consolidated the good results we achieved throughout the year, said Petrobras president Jean-Paul Prates. Records were set in several areas, including E&P and refining.”
New discoveries required. Overall, the Brazilian oil sector remains generally competitive in the international arena, given that the majority of the country's oil production is offshore, with relatively low costs and emissions. However, the country is facing reserve exhaustion, as many of these mature reservoirs are no longer commercially viable. Indeed, such a position was recently expressed by representatives of the Brazilian state.
According to recent calculations, made by the Brazilian government’s energy planning department, oil production will peak at 5.4 MMbopd in 2029 and begin to decline after that. Today, the country is self-sufficient and produces between 3.0 MMbopd and 4.0 MMbopd, which enables the country to be a net oil exporter. The most recent data from the National Petroleum, Natural Gas and Biofuels Agency (ANP) indicates that Brazil's average oil production reached a record 3.68 MMbopd in November 2023, driven by development of significant pre-salt areas.
According to calculations by Brazil’s Ministry of Mines and Energy, the planned investments will ensure stable oil production until 2028 after which, however, the country will face exhaustion of its existing reserves and the need for their replenishment. Further forecasts are rather worse, as the decline in reserves will make the country an oil importer within ten years.
Exhaustion of reserves. In general, most local analysts believe pre-salt reservoirs—which were positioned as a “winning ticket” by President Luiz Inácio Lula da Silva in his second term—show obvious signs of exploratory exhaustion. In fact, the discovery of large reserves in the Campos basin in the mid-1970s, on the coast of Rio de Janeiro, became the turning point for Brazil and its oil sector. In 1985, the need for imports decreased to 50%, due to increased domestic production. Campos was the flagship oil basin in Brazil until the discovery of pre-salt reserves, on the coast between Espírito Santo and Santa Catarina in 2006, Fig. 2.
Still, according to experts at Brazil’s O Globo business paper, the pre-salt is gradually losing its commercial appeal. This is also reflected by the fact that the demand for pre-salt blocks, which have been offered regularly by the government in recent years to both domestic (primarily Petrobras) and foreign companies operating in the local oil sector, has declined significantly. In this regard, specific hopes are pegged to the increase of oil production in relatively untested areas of the country. Currently, Brazil has the second highest oil reserves in Latin America after Venezuela (it also ranks 16th worldwide). The plan calls for producers to increase production in some newly discovered oil-rich areas of the country.
One of them is the Northern Brazilian Equatorial Margin, including the Foz do Amazonas, Pará-Maranhão and Barreirinhas basins, which recently have begun to be positioned as potential centers of oil production in Brazil, Fig. 3. This region extends over an area of 2,200 km from the coast of Amapá to Rio Grande do Norte, close to the eEquator. Of these, Foz do Amazonas basin is considered the most promising. This is due to the major discoveries in nearby Guyana and Suriname.
According to estimates from Brazil’s Ministry of Mines and Energy (MME), there are approximately 10 Bbbl of recoverable oil on the Brazilian border. This is significant, considering Brazil’s current proven oil reserves are 14.856 Bbbl. The MME calculates that the area could generate $56 billion in investments, in addition to revenue of around $200 billion. In 2024, S&P Global forecasts Brazilian oil production will grow on a year-on-year basis, but will be lower than in 2023. It is expected production growth for 2024 will be driven mainly by two new FPSOs in Mero field, on the Libra block in the Santos pre-salt basin:
Petrobras ready for further expansion. State-owned Petrobras is still the largest company in Brazil and among the ten largest oil companies in the world, accounting for 70% of oil produced in Brazil. In the case of Petrobras, the company intends to put 14 new oil and natural gas production platforms into operation over the next five years as part of its 2024-2028 Strategic Plan, announced in November 2023. The plan calls for $100 billion in capital investments. Of that total, $91 billion will be allocated to projects already under implementation, while $11 billion will go to those still under evaluation. Of the expected amount, around 72% will be invested in E&P. Petrobras awarded Diamond Offshore’s Ocean Courage semi-submersible a four-year project, with an option for four more, Fig. 5. The $429 million contract began late in fourth-quarter 2023 after conclusion of the rig’s old contract, said Diamond Offshore.
The plan is expected to increase Petrobras’ oil and gas production to 3.2 MMboed by 2028. Regarding just oil, production would increase 13.6% in 2028, to 2.5 MMbpd, compared to 2.2 MMbpd forecast for 2024. According to the company, “a new generation of platforms is being built, more modern and technologically advanced, with increased efficiencies and lower emissions.” The cost of the current investment plan is 31% higher than the company’s announced investments of $78 billion for the 2023-2027 period. Still, despite the planned production increase, the company’s output this year is expected to remain stable after an increase in 2023. This is due to some important fields, which Petrobras brought into operation in the early 2010s, peaking and having since begun to decline.
At the same time, there is a pause in the delivery of new production equipment to fields that are still expanding. As a result, Petrobras does not expect to record annual growth again until 2026. This means that any near-term expansion in Brazil will come from foreign oil companies and local junior producers, who accounted for just 12% of the country's production last year. Accordingly, Petrobras Executive Director of Exploration and Production Joelson Mendes wants to explore areas outside the pre-salt, which provides more than 70% of Brazil's production. Otherwise, the country's overall output will only grow until approximately 2030, and then begin to decline.
“The pre-salt will not last forever,” said Mendes in an interview with Brazil media in Rio de Janeiro. “By 2050, Brazil will be an insignificant country in terms of oil production, unless Petrobras finds more oil.” In addition to traditional pre-salt reservoirs, Petrobras is considering resuming work on some old fields on the southeastern coast.
Future outlook uncertain. In 2023, Brazil was the ninth-largest oil producer in the world. Brazil's production grew more last year than that of any other country except the U.S. and Iran. It produced an average 3.4 MMbopd. Of this figure, more than a third is exported, as the country stopped investing in its refineries and does not manufacture all the petroleum derivatives it uses.
Brazil never depended as much on oil exports as Venezuela; however, in recent years, the situation has changed. Currently, crude oil is the second-largest product sold by the country abroad, with about $42.7 billion annually, second only to soybeans, which generate $45 billion. These figures are expected to increase in future years. According to recent statements made by IEA Executive Director Fatih Birol, Brazil plans to increase its share of global oil supplies to 4% by 2030, compared to the current 3%.
Still, the existing prospects for a significant increase in future Brazilian oil output are not guaranteed. In accordance with the existing Energy Transition Program, of the Brazil Energy Research Company (EPE)—a state body responsible for planning activities in the Brazilian oil sector—the share of oil in the Brazilian energy matrix will fall from the current 35% to between 5% and 15% in 2050—the year the country committed to net-zero greenhouse gas emissions. Moreover, in accordance with estimates of the Inter-American Development Bank (IDB), the decrease in demand could lead to a halving of Brazilian production by 2035.
In addition, there are some opponents in the Brazilian federal government that are lobbying for a sharp decline of oil output in the country. One of them is Minister of the Environment Marina Silva, who has recently said that “Brazil must consider limiting oil production and exploration,” also through the introduction of a ceiling for oil exploration. This is due mainly to the need for further development of the renewable sector of the country (which, according to state plans, should grow three-fold), environmental issues, and the need to protect Amazon crucial ecology.
Still, despite the existing opposition, most leading local producers and global majors have no plans to cut their capacities, at least in the short term. For example, Petrobras President Prates recently said, “the company is going to produce more and more of the oil that humanity will consume.” The same plans have been confirmed by Minister of Mines and Energy Alexandre Silveira, who in an interview with the Financial Times, has also not ruled out the possibility of increasing in oil production in new areas of the country, particularly those located in the mouth of the Amazon river.
Shell continued investments conditional. Shell Brazil announced plans to investigate opportunities in the offshore pre-salt play and other promising regions. Shell Brazil official spokesman Igor Baiense said in an exclusive interview that the company is open to new prospects, if terms and conditions are technically and economically attractive.
According to Baiense, Shell has strengthened its positions in the local market significantly, planning further expansion in the next several years—“Shell is the second-largest hydrocarbon producer in Brazil and has placed successful bids for 29 new exploration areas in December 2023.” Brazil is already one of the main oil and gas producers in the world, solidifying its position as a major player in the energy sector. In the Brazilian pre-salt region, Shell produces some of the lowest-carbon crude worldwide, making it a high-value and competitive product in the context of the energy transition. Provided regulatory terms are favorable, Brazil has significant potential for growth on several fronts, including oil.
However, “there are several issues that prevent more active development by the company in the Brazilian oil sector, specifically regulatory and tax stability, environmental licensing and a multitude of production contract models,” Baiense continued. “These factors have not prevented us from taking a final investment decision on several Brazilian projects previously, but they are key drivers that can impact the country’s overall competitiveness against other regions of the world.”
Purchases by smaller companies perpetuate mature fields. But according to analysts, other companies outside Petrobras will provide a major impetus for growth in Brazil’s oil sector over the next several years. A recent report by Wood Mackenzie stated that by 2030, large producers in Brazil plan to increase their average annual production 75%, from 1.22 to 2.12 MMbopd. International oil companies, including Shell, Equinor, TotalEnergies, Repsol Sinopec and Petrogal, are expected to be the main drivers, as they are Petrobras' partners in the pre-salt plays and in developing fields, including Tupi, Sapinhoá, Atapu, Sépia and Mero.
An example is Seacrest Petroleo, a medium-sized Brazilian-based oil producer that recently announced its intention to drill hundreds of new wells in Brazil. The company, which recently purchased fields in Espírito Santo from Petrobras, intends to drill 300 wells over the next five years, said its President, Scott Aitken. The explorer also wants to rehabilitate 200 wells abandoned by Petrobras. Seacrest is among the smaller companies seeking to take advantage of a development boom in Brazil. Since 2019, Petrobras has sold more than 100 fields to a dozen smaller companies, which are interested in ncreasing production from wells that are no longer of interest to the state-owned company. WO
Lead Photo: Petrobras completed drilling at the Pitu Oeste deepwater exploratory well on Jan. 29. The well is off the coast of Rio Grande do Norte state, in the Brazilian Equatorial Margin. The venture detected hydrocarbons, and assessment of economic viability is underway. Petrobras will continue its exploratory research in the region and plans to drill a second well in the Potiguar basin in February.
EUGENE GERDEN is a freelance writer, who specializes in covering the global oil and gas sector. He has worked in the industry in multiple communications roles. He can be reached at gerden.eug@gmail.com.