Brazil’s Big Oil Bet

May 14, 2009

Brazil's biggest oil field highlights Petrobras earnings. Will Tupi change the oil world?
  • Brazil's move on up the league tables
  • Big drilling challenges
  • Initial successf

 

As an update to last week's oil company earnings roundup, I bring you Brazil's state-owned oil company, Petroleo Brasileiro (PBR), affectionately known as Petrobras. It may seem like same story, different day, as Petrobras announced a 20% drop in first-quarter net profits compared with Q1 2008 (due to - yawn - the global economic slowdown, lower oil prices and lower demand).

But there are some interesting things happening in Petrobras - mainly an increase in capital spendingf to the tune of $28.6 billion this year - up from $23 billion last year.

Why the massive billions in capital?

One word - Tupi.

Brazil is a bit of a newcomer to big oil exploration and production, compared to the pre-World War II boom days in the Middle East. But going back to 1954 with onshore drilling and expanding offshore the following year, Brazil has steadily increased its production levels for half a century.

As with most oil nations, for the first couple of decades, the majority of the oil produced in Brazil came from onshore fields, but Brazil continued to find and develop offshore sites. In 1977, the Campos Basin was opened up and began production, and by 1982, 54.4% of Brazil's domestic production came from offshore wells. By 2008, 89.5% of Brazil's oil came from offshore drilling, with 83% of the oil coming from the Campos Basin. (You can dig in to the National Production of Crude Oil stats here.) In 2008, domestic production averaged 1.85 million barrels per day of oil and natural gas. So far in 2009, Petrobras is averaging 1.99 mbpd.

Petrobras continued to explore for oil and in November of 2007, it announced the discovery of the Tupi oil reserve located in the Santos Basin off the southeastern coast of Brazil.

The oil was sweet, with sulfur content less than 0.5% sulfur by weight, and with a gravity of 28 atmospheric pressure ionization, it was in the medium-to-light oil range. In other words, it was essentially perfect for refining. And there was possibly a lot of it - 5 billion to 8 billion barrels of oil equivalent (BOE).

While Tupi is a large field - the 5 billion to 8 billion BOE is more than enough to qualify it as a "giant" field (a designation that kicks in at 0.5 billion BOE) and the largest to be found in 20 years, it's still small time compared with the real giants: Saudi Arabia's Ghawar, the world's largest oil field, has somewhere between 66 billion and 150 billion BOE. Tupi's upper estimate does land it in the neighborhood of the 20th largest oil field in the world - Iran's Gachsaran - but only in an across-the-tracks kind of way. Gachsaran has a reserve estimated between 12 billion and 14 billion BOE.

If you're wondering about who holds places 2 through 19, check out Fredrik Robelius' dissertation Giant Oil Fields - The Highway to Oil.

 

Timeline

So Petrobras discovered the Tupi reserves in October of 2006, announced its existence to the world on November 2007 and on May 1, 2009, the first barrels of oil started flowing in an extended well test (EWT). The EWT is expected to peak at 15,000 bpd and last 15 months. By late 2010, after completion of the EWT, the Tupi Pilot Project is expected to begin, with production levels forecast at 4 million cubic meters of natural gas and 100,000 barrels of oil produced per day.

Full production at Tupi is forecast to top out at 1 million barrels of oil per day - effectively increasing Brazil's production to close to 3 million bpd. That's enough to take Brazil from the No. 16 position on the top oil-producing country list, up to No. 6 - leapfrogging over places such as Mexico, United Arab Emirates, Canada, Kuwait, Venezuela, Iraq, Norway, Nigeria, Angola and Algeria. And that's not all - Petrobras is aiming to increase overall production to 3.6 million BOE by 2013 as it continues to add new wells.

Look out big boys - here comes Brazil!

 

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