Drive for self-sufficiency pushes action offshore Brazil
Peter Howard Wertheim, Dayse Abrantes,Special Correspondents
The pace of oil and gas operations offshore Brazil is going to be rapid for some time to come if it is to reach and maintain its target of petroleum self-sufficiency by 2010. The job of leading the way falls to state-owned Petrobras, but private oil companies are going to have to be involved if the bulls-eye is going to be struck with something that sticks.
Sergio Gabrielli, president of Petrobras, says Brazil has a national production target of 2.3 MMb/d of oil by 2010. Demand at that time is expected to approach 2 MMb/d. The cost of hitting that target is budgeted by Petrobras at $53.6 billion, not counting private company operations, from 2004-2010.
Petrobras has earmarked more than $1 billion to renew its commercial fleet with 53 new vessels. Oil tankers account for 17 of the ships, liquid oil products haulers account for 19, 10 are support vessels, 6 carry LPG, and there is one FSO. Nearly another $1 billion is scheduled for pipeline and terminal operations and safety projects.
The steps to increasing production and reserves, according to Petrobras, heavily involve offshore operations:
- Strengthen expertise in deep to ultra-deepwater
- Focus on profitable onshore and shallow-water fields
- Implement practices and new technologies in areas with high exploitation chances in order to optimize recovery
- Develop exploratory efforts in new frontiers to sustain reserve/production ratios
With first production in April of this year from Petrobras-operated (10% participation by Repsol YPF) FPSOP-50 in the Albacora Leste field in the Campos basin, Brazil is on its way to self-sufficiency. The P-50 has capacity to process 180,000 b/d of oil, representing around 10% of current crude oil output.
When it reaches full production capacity, the unit will render the self-sufficiency process sustainable. Three other platforms are scheduled begin production in 2006:
P-34, producing 60,000 b/d of oil in the Jubarte field, offshore Espírito Santo state; SSP-300, producing 20,000 b/d in the Piranema field, Sergipe state; and FPSO Capixaba (100,000 b/d) in the Golfinho field, also offshore Espírito Santo.
These platforms will allow Petrobras to reach an average daily production of 1.9 MMb/d in 2006, surpassing the country’s consumption of 1.8 MMb/d. In coming years, the trend is for the curves to diverge even more. In 2010, Petrobras expects to produce 2.3 MMb/d, against consumption of 2.0 MMb/d.
Alongside the new platforms, which started production in 2003, these projects allow Petrobras to increase production by 400,000 b/d, surging from 1.5 MMb/d in 2004, to 1.91 MMb/d in 2006.
Other factors are expected to contribute to this growth, including mature onshore and offshore field maintenance and revitalization.
Discovery requirements
Local analysts say Petrobras’ main issue in maintaining self-sufficiency is the task of discovering at least 800 MMbbl of oil per year to maintain the reserves/production ratio at the present level, sustained over 19 years.
Petrobras says this target is achievable because the company knows the geology of Brazil’s sedimentary basins, continuously upgrades technology, and is investing sufficiently.
Up to 2010, Petrobras plans include first production from 17 new systems, which indicates the company intends to retain its concentration on production.
Over the past five years, investments in E&P reached approximately $18 billion. From 2006 to 2010, Petrobras foresees investments in the order of $28 billion in these areas alone.
Other operators investing offshore Brazil include Shell with plans to exploit the Abalone-Ostra-Argonauta-Nautilus fields; Devon Energy operates the Polvo field; Chevron has the Frade field; and El Paso, the Sardinha field. Devon, El Paso, and Chevron are expected to be producing by the end of 2006.
Over and beyond the investments, the discovery of new and promising exploration areas indicates excellent production potential. In December 2005, Petrobras declared the commercial viability of five new fields, among them the giant Papa-Terra field in the Campos basin.
New concessions
Petrobras also works in new exploratory concessions. In October 2005, during the Seventh Bidding Round, promoted by the National Oil, Natural Gas, and Biofuel Agency, the company purchased 96 of the 109 blocks it contended for - 42 alone and 54 in partnerships. These blocks total nearly 40,000 sq km. As a result, Petrobras’ exploratory portfolio totals 134 blocks and encompasses 151,500 sq km.
Some of Petrobras offshore production plans include:
• TheP-54 FPSO, for the Roncador field, at $782 million, with start-up in January 2007 with 2 MMbbl storage, and production capacity for 180,000 b/d of oil and 6 MMcm/d of gas. Thirteen production wells and 8 injection wells are planned. The principal contract is with Jurong Shipyard
• FPSOCidade de Vitóri, at the Golfinho field, will achieve first production in May 2007, with processing capacity for 180,000 b/d of oil and 3.5 MMcm/d of gas. It will also be fitted with capacity to store 1.9 MMbbl of oil. The project calls for four producing and three injection wells. The main contractor is Saipem
• FSOCidade de Macaé, in Marlim Sul, Marlim Leste, and the Roncador fields (autonomous repumping system and drainage of these three fields). This storage unit is expected to begin operations in June 2007 with capacity for 2.1 MMbbl of oil
• The PRA-1 fixed platform will receive oil from Roncador, Marlim Sul, and the Marlim Leste fields in the Campos basin. Some $475 million is being invested in the platform, which is expected to achieve first production in June 2007 at a water depth of 106 m with capacity to process 750,000 b/d
• TheP-51 semisubmersible is expected to come onstream in February 2008 at the Marlim Sul field at a cost of $830 million. It will have processing capacity for 180,000 b/d of oil and 7.2 MMcm/d of gas. The project calls for 17 producer and 12 injector wells. The main contract is with consortium Fels Setal-Technip
• TheP-52 semisubmersible, worth $935 million, will process 180,000 b/d of oil and 9.3 MMcm/d of gas. The platform will be installed in the Roncador field, Campos basin. The main contractor is Fels Setal-Technip. The project calls for 19 producer and 10 injector wells
• TheSSP 300 cylindrical monocolumn FPSO is another technological breakthrough for the company. An initial five-year outing for the platform on the 80 MMbbl Piranema light oilfield in the deepwater Sergipe-Alagoas basin off Brazil’s northeastern coast, is scheduled by year-end 2006. The SSP 300 - so called for its 300,000 bbl oil storage capacity - will be mobilized to block SEAL-100 by December, ready to be installed in some 1,000 m of water using a 3 x 3 hybrid mooring system before connection to as many as 21 risers and umbilicals. The unit will have processing capacity for 30,000 b/d of oil and 3.6 MMcm/d gas. Over the 11-year fixed charter with Petrobras, the FPSO will prove its ‘flexibility and mobility’ by moving to anchorage in water depths up to 1,700 m.
Petrobras is not the only operator deploying FPSOs into Brazilian waters. Chevron Corp., through its affiliate Chevron Frade LLC, along with partners Petrobras and Frade Japao Petroleo Limitada, a joint vehicle company of INPEX, Sojitz and JOGMEC, have committed to develop the Frade oil field offshore Brazil. Frade is Chevron’s first oil field development in Brazil.
Development plans consists of horizontal production wells and vertical water injection wells. Each producing well will individually tied back to an FPSO. Oil will be exported by tanker, while natural gas will flow through a local pipeline.
Chevron signed a letter of intent with SBM Offshore for engineering, procurement, construction, and installation for the FPSO planned to develop Frade. SBM will convert itsLusan vessel with capacity to process 100,000 b/d oil, 106 MMscf/d of gas treatment and compression, 150,000 b/d of water injection, and store 2 MMbbl of oil. Installation in 1,080 m of water is scheduled for 2Q08, with first production in 2009. Frade’s recoverable reserves are estimated at 200-300 MMbbl.
In late 2005, Chevron entered into a three-year drilling contract with Transocean for theSedco 706 to drill the Frade development wells.
At press time, other contracts awarded for Frade-related work include:
- Operations services of the FPSO to Single Buoy Moorings Frade Servicos Maritimos Ltda. of Brasil
- Design and manufacture of subsea equipment to FMC Brazil and FMC Technologies Houston
- Design and manufacture of umbilicals to Marine Production Systems do Brasil, Ltda, a subsidiary of Oceaneering International Inc. of Houston
- Design and manufacture of flexible pipe to Wellstream International Ltd of the UK
- Installation of subsea facilities to Acergy Brasil, S.A. and Acergy U.S. Inc.
Estimated cost of the entire project is $2.4 billion. Chevron Brasil Limitada holds a 51.74% working interest, Petrobras has 30%; and Frade Japao Petroleo 18.26%
Natural gas
On the natural gas front, Petrobras plans to increase production by 24 MMcm/d in 2008 by working the established areas off Espírito Santo state.
The company wants to produce 16.5 MMcm/d in Espírito Santo alone, mostly by developing recent finds in the 1-ESS-160, 1-ESS-164, and 1-ESS-130 fields. While the fields have not yet been deemed commercial, expectations are high.
Wells 1-ESS-164 and 1-ESS-160 are in the deepwater BES-100 block in the Espírito Santo basin where the Golfinho field is located. The 1-ESS-130 is in the ultra deep waters of BC-60 block, also of the Espírito Santos basin, but geologically separate.
Despite the opening of the oil sector after the end of the Petrobras monopoly in 1997, the state-owned company dominates the market, producing nearly 97% of the state’s oil and 99% of its gas.
In addition to Petrobras, Royal Dutch Shell, Repsol YPF, UP Petróleo, Petrosynergy, W.Washington, Starfish, Queiroz Galvão, Coplex, PetroRecôncavo, TDC Engineering, and Aurizonia produce in Brazil. Shell ranks second after Petrobras with some 45,000 b/d of oil produced from its Bijupirá-Salema field in the Campos basin.
Earlier this year, theSSP Piranema hull, complete with accommodation unit, was skidded onto the drytow vessel Kang Sheng Kou at Yantai for its 35-day voyage to Rotterdam. At Keppel Verolme, work is under way to install the oil processing plant, and a gas compression and injection module as part of a contract that includes fabrication and installation of steel structures, and the hook-up of marine systems such as cranes and an offloading station.
Keppel Verolme received a contract from Sevan Marine to outfit the SSP for Piranema. This contract includes pre-assembly and installation of process skids, pressure vessels, piping, and valves. In addition, there is the fabrication and installation of steel structures, and the hook-up of marine systems such as cranes and offloading station.
These examples of new platforms give a picture of the size of investments and efforts being made by Petrobras to maintain the equilibrium between production and consumption.
Local content
Beyond Petrobras, Chevron/Texaco, British Gas, Devon, EnCana, Newfield, Wintershall, Kerr-McGee, Statoil, and Partex are expected to invest $6.4 billion through 2007 to fulfill contractual obligations.
Large-scale production projects by Petrobras have a guarantee of upwards of 60% national content to sustain local industry development. Since 1998, more than 40 international firms have set up shop in Brazil. Most opportunities for private firms are for servicing or supplying Petrobras. The 2005 estimate for Brazil’s oil and gas equipment market is $12 billion; $2.8 billion imported and $1.5 billion from the US.
Opportunities for offshore and onshore equipment and services include flexible pipes, oil well completion systems, pumps, valves, drill pipes, and subsea services.
Petrobras, federal, and state governments increasingly favor local firms or firms with significant local content. Because local content in Petrobras’ purchases varies from 51% in E&P to 92% downstream, foreign companies are encouraged to seek local supplier partnerships.
Local content requirements have created tax changes. To attract foreign oil and gas investors, Brazil’s government created a special federal tax exemption regime (Repetro) in 1999 (scheduled to last until 2020). Although domestic suppliers also were eligible, foreign suppliers benefited the most because they were also exempt from state sales tax (ICMS). In June 2003, however, Rio de Janeiro abolished the ICMS exemption for foreign oil and gas equipment suppliers.
After lobbying from drilling service providers, in 2004 the state allowed ICMS exemptions for oil rigs, exploration and drilling equipment suppliers, and extended this benefit to rig and spare part suppliers for contracts signed before June 2003.
Such unpredictability retards investment, and some oil companies have urged the government to reconsider fiscal terms for E&P activities, arguing that the trend in Brazil is finding heavy oil in ultra-deepwater, which increases risks and costs but reduces rewards.
Sufficiency countdown
The self-sufficiency countdown started about a year ago, when FPSOsP-43 and P-48 went into operation at the Barracuda-Caratinga complex, in the Campos basin. The FPSO P-50 is contributing production as well. It achieved first production in the first half of 2005. The unit is 337 m long, 21 m wide, and 55 m tall, equivalent to an 18-story building. It can compress 6 MMcm of natural gas and store 1.6 MMbbl of oil. The unit results from the conversion of the >Felipe Camarão, which belonged to Petrobras’ fleet. Jurong shipyard performed the conversion.
TheP-50 cost $634 million. The modules under the hull were built in Brazil and all the unit’s components were integrated in country. These projects generated 4,000 direct and 12,000 indirect jobs in Brazil.
Oil autonomy comes to crown the work Petrobras has carried out in its nearly 53 years of existence. When it was created, Petrobras inherited the production of 2,700 b/d.
The company has surged to global leadership in developing technologies to extract oil from deep and ultra deep waters, where 70% of the Brazilian production is found.
Petrobras maintains 95 oil production platforms. Currently, Brazil has 21 onshore and offshore drilling rigs, mostly operated by Petrobras, and in the last few years, oil companies have ordered more than 400,000 mi of seismic lines and drilled approximately 200 offshore wells.
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Perspectives
Exploration and production activities have been defined as a priority in the Petrobras business plan, with $28 billion in capital expenditures allocated in Brazil for the period 2006-2010.
Currently, Petrobras has an exploration portfolio of 134 blocks in Brazil, representing a total of 160,700 sq km. Of this, 76% is offshore and 64% in deep or ultra deep waters.
The Campos, Espírito Santo and Santos basins alone account for no less than 41% of Petrobras’ total exploration portfolio area, and all are close to the southeastern consuming market and the country’s leading refineries.
The exploration by Petrobras of Brazilian offshore reservoirs began in 1968 in the Guaricema field of Sergipe basin in water depths of approximately 30 m off the state of Sergipe, in the northeast.
Today, after almost 40 years of offshore activities, submarine production has become vital for Brazil and Petrobras, accounting for about 80% of total production and representing approximately 88% of proved reserves.
The Campos basin became Brazil’s leading hydrocarbons province following discoveries beginning in 1974.
In May 2006, this area recorded an output of about 1.48 MMb/d of oil, or 82% of total domestic production.
Two offshore records also are sustained in the Campos basin in Brazil: the RO21 well in the Roncador field produces in water depth of 1,886 m, and exploratory well 1 RJS 567 was drilled at a water depth of 2,853 m.
Espírito Santo, Santos
Having consolidated the Campos basin as the major source of oil, Petrobras faces the challenge of making the adjacent Espírito Santo and Santos sedimentary basins into major oil and gas producers as well, through the installation of the necessary infrastructure and support for ensuring production off-take.
In this context, the Espirito Santo basin will be one of the prime production poles for offshore activity in Brazil over the short-term. The Company has finds of natural gas and heavy and light oils of high quality and market value in this basin. Following development of the Jubarte and Cachalote fields, as part of the ‘Parque das Baleias’ (whale park), Golfinho and Canapu, and Peroá and Cangoá fields in the Espírito Santo basin, with an acreage of 10,600 sq km or 7% of the total exploratory portfolio, will be transformed into Brazil’s second production pole.
The Santos basin is a further area of increasing importance in the production of natural gas and oil. Here, Petrobras and its partners are to invest approximately $18 billion over the next 10 years in exploration and production activities.
The Master Plan for Santos basin estimates a growth in supply of about 12 MMcm/d of natural gas to Brazil’s southeast market beginning in 2009. Before the end of 2010, this volume is slated to increase to around 30 MMcm/d, significantly reducing the contribution of the country’s dependence on imported Bolivian natural gas.
The development of the Santos basin is to be conducted from five production poles, among them Mexilhão and the BS-500 block.
Projects
Out of the 13 major development projects planned to go into production by 2010 as part of the drive to meet the oil production target of 2.3 MMb/d, the construction of production units for eight of them already have been contracted in the market:P-34 (Jubarte), SSP (Piranema), FPSO Cidade de Vitória (Golfinho module 2), P-52 (Roncador), P-53 (Marlim Leste), P-51 (Marlim Sul), FPSO Rio de Janeiro (Espadarte), and P-54 (Roncador).
In addition to these production units, the following are already in the contracting phase or the finalization of the projects’ development solution: Golfinho module 3,P-57 (Jubarte phase 2), P-55 (Roncador), Albacora complementary project, and the unit for the Campo de Frade, operated by Chevron with the participation of Petrobras. In 2006, the following units are installed and operating: P-50 (Albacora Leste) and FPSO Capixaba, which together with the P-34 and SSP Piranema units - slated to go into operation in September and October, respectively - will contribute to the oil production target of 1.91 MMb/d, representing an average growth of 13% compared with the average for 2005. Note that the average output in 2005 (1,684 Mb/d) was already 13% more than 2004 (1,493 Mb/d), principally due to the start-up of operations at the offshore units of FPSO Marlin Sul, P-43 (Barracuda) and P-48 (Caratinga), with production capacities of 100, 150 and 150 Mb/d, respectively.
In the short-term, domestic production capacity is to be ramped up by a further 560 Mb/d in 2007 with start-up of the FPSO Cidade de Vitória (100 Mb/d), FPSOCidade do Rio de Janeiro (100 Mb/d), P-54 (180 Mb/d) and P-52 (180 M b/d) units, all of them under construction at Brazilian and overseas shipyards.
Future
In the context of high oil prices and the resulting shortage of equipment, particularly drilling rigs, Petrobras currently has a portfolio of 87 rigs, of which 46 are offshore units. Of these 46 rigs, 18 are wholly owned units. In order to guarantee and meet company production targets, in August 2005, Petrobras renewed contracts with the owners of 24 units, adopting the strategy of long-term contracts with average 5-year terms.
Aiming at achieving a sustainable future production growth rate by replenishing reserves and lengthening its exploratory portfolio, in recent years Petrobras has been the most important participant in the National Petroleum Agency’s yearly exploration tender rounds.
The most noteworthy example is the last round held in October 2005, when Petrobras successfully bid for 96 blocks (39,800 sq km), of which 23 are offshore, raising its total exploration portfolio to 134 blocks.
New possibilities are in the horizon with the recently announced anticipation of Round 8 scheduled for August 2006, when 1,153 blocks of which 582 are offshore, will be tendered. The interest showed by other companies, including multinationals, in offshore Brazil is also noteworthy. Of the 134 exploratory blocks Petrobras maintains under concession, 68 are joint ventures. Moreover, eight of the 27 blocks currently in the evaluation stage and 16 of the 284 blocks in production also have other companies working on joint ventures with Petrobras.
Petrobras strategic emphasis on exploration and production can be measured by the increase in sector CAPEX which rose from $3.1 billion in 2002 to $5.6 billion in 2005, an increase greater than 80%. This is likely to reach $7.6 billion in 2006, according to the current CAPEX budget. A critical combination of assets will allow Petrobras to meet its production target in a sustainable manner. Among these assets are the company’s exploratory portfolio, proved reserves, managerial capacity and expertise in the execution of major offshore projects allied to the absence of financial restrictions, and the optimization of available resources. These assets are conducive to realizing the country’s offshore exploration potential, thus consolidating its position as a world-class integrated energy company.
Photo courtesy of Stéferson Faria, Petrobras.
