Petrobras reveals long-term strategy for Gulf of Mexico

Petrobras’ (October 2006) portfolio in the Gulf of Mexico consists of 320 leases (200 deep and ultra deepwater), operating 170, 6 producing fields, 3 discoveries under appraisal/development, 1 field under development, 30-40-prospect inventory, and 2 exploration wells under way. Portfolio map courtesy of Petrobras.

Offshore: Does Petrobras see opportunity in deep shelf drilling?

Bertani: Yes. The second core area that we have in our GoM portfolio is in shallow waters aiming at very deep reservoirs. In this area, we have exposure to perhaps a dozen exploration opportunities targeting deep prospects with potential for natural gas. Of course, this is a risky and very expensive play, but still we think that the potential is there. So, we decided to make an effort in this area. We were partners on the ExxonMobil-operated Blackbeard well in South Timbalier block 168 in 70 ft of water. This well was terminated before we reached the main target because of extremely high pressures. Nevertheless, what we learned from this well is very valuable information that will help us continue our efforts in this play.

Offshore: How much capital is Petrobras investing in the Gulf over the next several years?

Bertani: Currently, our E&P capex budget for the US GoM for the period of 2007-2011 is close to $1.5 billion. This budget certainly is going to be revised, because we are adding new projects and costs are increasing -- mostly because of the large number of projects that we intend to implement. Right now, we’re are in the midst of preparing our budget for next year and the subsequent five-year period. And I’m quite sure that there is going be a significant increase in this figure. It might get close to $2 billion once we complete the process.

Offshore: Has Petrobras secured enough drilling capacity to execute its strategy in the Gulf?

Bertani: This is one of the main hurdles we are faced with. Drilling rigs are critical resources nowadays. What we’ve been doing is, first of all, we have one rig currently drilling in the Garden Banks area, and then we’re going to move this rig to drill another well either in the vicinity or near Corpus Christi.

For our ultra deepwater program, specifically the Lower Tertiary plays, we secured a contract with Norway-based Sevan Marine for a newbuild rig, which is expected to be delivered in early 2009. This is the first long-term rig that we have secured for exploration in the GoM.

In addition, we are currently in negotiations to bring two more deepwater rigs to the Gulf by late 2008/early 2009. Overall, our plans call for having up to three rigs operating simultaneously in the Gulf. Meanwhile, if any window of opportunity appears, a slot from a rig that may become available, we’ll certainly be very interested.

Offshore: What types of technology and experiences is Petrobras bringing to the Gulf?

Bertani: When it comes to technology, the first thing that comes to mind is our expertise in deepwater E&P. We are trying to bring what we know from Brazil and use it in the GoM, particularly the FPSO concept.

We work here (GoM) in partnership with basically all of the major oil companies, and our approach is always to be a very proactive partner. We have things that we can contribute, but we also understand that our partners have robust portfolios of technologies and strengths, as well.

So, basically our approach is: when working in a partnership, cooperation in bringing all necessary technologies to the table so we can move forward with our investment in the most effective way.

The other thing, which I think is important for our campaign here in the GoM, is our knowledge obtained from the geology of other basins of the world where we are active. There’s always an element of understanding the geology of reservoir characterization and structural geology that could eventually be extrapolated into the Gulf, of course taking into consideration that there are unique geological conditions in the region.

For example, although regional geologic characteristics are not exactly the same, what we learned in terms of reservoir characteristics and gas deliverability potential in our deep wells in Bolivia is valuable information to help us to better understand the potential of our deep reservoirs on the shelf. Again, we know there are different geologic settings, but there are certain characteristics that could simply be extrapolated.

The Petrobras-operated P-48 FPSO (pictured) is one example of the type of technology that the company intends to bring to the Gulf of Mexico. This FPSO currently is permanently installed by an 18-point mooring system on the Caratinga field in 1,000 m of water offshore Brazil. The 268,000-dwt unit is fitted with capacity to process 150,000 b/d and store 2 MMbbl of oil.

Offshore: No company has publicly announced plans to deploy an FPSO in the US Gulf of Mexico since the MMS said it would consider an application for this type of facility on Jan. 2, 2002. With that said, how does it feel to be the first company to officially announce plans to use an FPSO in the region?

Bertani: The most important aspect here is, not necessarily because Cascade and Chinook are going to be the first developments with an FPSO, but that we are bringing a concept to the GoM with which we are very familiar, especially in deepwater offshore Brazil. This technology will allow for the development of reservoirs that still have significant uncertainty. And even though we have very encouraging results from the Jack well test, still we are dealing with very deep reservoirs and we need to go step by step.

Our approach is through phased development with an FPSO. During the first phase, we are going to bring a couple of wells online from each of these fields. Then, as we learn about the reservoirs with these wells, we’ll design the next phases. We’ll add additional wells as we prove the reservoir’s capability to sustain long-term productivity. In the later stage, once we are convinced of the reservoir’s size and capability, we then will consider the possibility of installing a longer-term production facility.

We definitely will start with an FPSO, particularly because it allows us flexibility in applying a phased-development concept. In addition to this, we think the FPSO solution is very appropriate considering the issue of hurricanes in the Gulf. So, we are considering the disconnectable FPSO concept. This allows for quick disconnection in the event of an imminent hurricane, followed by rapid re-connection when the weather is clear.

This concept also has a built-in element of safety in that you don’t have to evacuate the platform, the crew stays onboard. Evacuations have a high operational risk, especially when a number of them are being performed simultaneously. This concept can mitigate risk to human life.

We’ve been discussing this (FPSO) concept with the MMS and US Coast Guard for a number of years. We wanted to fully understand their concerns and requirements. And at the same time, we wanted to inform them of the operation and types of facilities we’ve been successfully using in Brazil. I think things are converging so that now we are in position to deploy the FPSO concept for these two developments (Cascade & Chinook), with first oil scheduled in 2009.

Offshore: Please elaborate on this phased development concept.

Bertani: Once you have phase 1 development, also known as the early production phase, depending on reservoir performance, you can stay with the phase 1 FPSO in-place, expand it, or you can replace it with a full-field development facility. It could be an FPSO, spar, or a number of other options.

Offshore: Does Petrobras intend to maintain a specific production level in the GoM?

Bertani: Yes. We use a probabilistic exercise that incorporates a weighted average on our portfolio of projects. We estimate that we can expect to reach production levels of around 100,000 b/d by 2013. Now, this could be substantially higher if our projects perform better than expected, or less, if the opposite occurs. This basically is just an exercise we use to help us plan.

Offshore: Many companies in the oil and gas industry are having trouble recruiting new, skilled employees. Is Petrobras experiencing this problem? If yes, how is the company dealing with the issue?

Bertani: We are exactly in the same boat as many other companies in the industry with shortages of skilled personnel. The way we’re handling this is through a combination of solutions.

First of all, we are trying to recruit through Petrobras’ resources in Brazil. This is an opportunity for Petrobras employees in Brazil to come work in a different environment like the US. It would be a good living experience for them and also an opportunity for us to bring some of those capabilities here to the GoM.

Also, we are considering bringing Petrobras employees here from other countries where the company has operations, such as Venezuela, Bolivia, and Argentina.

The other thing we are doing, which is more of a long-term solution, is recruiting young graduates from local universities. The idea is to prepare this talent for medium- to long-term careers. They will spend some time in Brazil to learn, not only its technologies, but also its mind-set and culture.

Overall, our recruiting strategy is a combination of local talent with more experienced people from Brazil. Without a doubt, this is one of the most critical issues that we as an industry face.

Offshore: Given the severe damage inflicted on the Gulf’s infrastructure from hurricanes Katrina and Rita, is Petrobras changing its strategy in any way to help protect its assets from future storms? Do you feel the industry is doing enough to protect future installations and drilling activity?

Bertani: Yes. I think the FPSO solution with the disconnectable turret certainly will mitigate some of the risks during a hurricane event. Also, we’re seeing more stringent specifications for moorings, so we will go along with what the industry requires.

Offshore: The Gulf of Mexico is home to a number of deepwater production solutions including subsea, compliant towers, converted jackups, various generations of spars and TLPs, semis, and now FPSOs. What do you see as the prominent deepwater production system in the Gulf in five years?

Bertani: I think it’s going to be a combination of facilities. The GoM is very well diversified in terms of geologic plays, operational conditions, size of discoveries, and reservoir productivity, so there are many different situations. And I wouldn’t say that each solution would require a particular facility, but certainly there will be room for all these various alternatives. And also, new plays are being discovered and they also will require their own particular solution.

I think the bottom line is that technological development will continue to be the key element in any company that wants to be successful. Improving on technological solutions and developing new facilities is going to be absolutely essential.

Offshore: Oil prices are hovering around $60 to $70/bbl (September 2006), and all segments of the oil and gas industry are performing quite well. How long do you think this boom will last? Are we overbuilding in the rig market?

Bertani: My perception is that the oil price will continue to be strong, not necessarily at the $70/bbl level; it may even drop below $50 in the next few years. That’s basically because we are seeing many new developments. The industry is continuing to be very active, and there are lots of new investments being planned, not only in the West, but in West Africa, the Caspian area, India, and Italy.

Also, the world economy is resilient. At least we are not seeing signs that a $70 oil price is, at least up until now, harming the world economy so badly as to create a world recession.

With that said, when we plan our investments, we work on a much more conservative and prudent scenario. Petrobras has recently just announced its long-term business plan indicating that a $35/bbl oil price is being used in planning investments.

To answer the rig part...that’s a tough question. The fact is that we are building a very strong portfolio here in the GoM, but we also have a number of options to use rig capacity from our other regional operations such as in Brazil, Angola, Nigeria, and the Black Sea. We see the rig capacities that we are contracting are certainly going to be fully used. I don’t see us having any idle capacity.

Renato Tadeu Bertani was appointed president of Petrobras America Inc. in September 2001. He has served in a number of different capacities with the company since 1984. Bertani holds a bachelors degree in geology from the Federal University of Rio Grande do Sul, and a master’s and doctorate from the University of Illinois.