OIL COMPANIEES RESUME PROJECTS AMID RECENT RECOVERY IN OIL PRICES – BRAZIL

Amid the recent recovery in oil prices on the international market, oil companies are slowly beginning to gain confidence to move forward with new projects. In month of June, when the Brent-type barrel surpassed US$ 70 for the first time in two years, Petrobras, the Norwegian company Equinor and the Australian company Karoon have announced investments of around US$ 10.5 billion in Brazil, for the next few years.

The list of new projects focuses on the Santos Basin. In the pre-salt, Petrobras signed a contract for the eighth platform in the megafield of Búzios, while Equinor decided to move forward with the Bacalhau project. In the post-salt, Karoon approved an investment in the discovery of Patola. Together, these three assets should contribute, at the peak of their operations, with a production of approximately 410 thousand barrels per day — equivalent to 14% of the volume produced today in the country.

For the head of research in the area of ​​exploration and production of oil at Wood Mackenzie in Latin America, Marcelo de Assis, the recently announced investments in Brazil occur within a global trend of gradual resumption of projects in the sector, after a 2020 marked by the shock of the international prices of the commodity and by the abrupt cut in the budgets of the oil companies. Assis recalls that Bacalhau and Patola are projects that have matured a few years ago and were in line, within the portfolio of companies, waiting for an opportune moment.

“The return of investments is a trend that we have observed. These projects, in Brazil, have a characteristic in common: they have a low breakeven [breakeven price that justifies economic viability]. They are very profitable projects in a low price scenario”, he comments.

In a context of energy transition to a low carbon economy and in view of the expectation that the global demand for oil will decline in the coming decades, projects with breakeven and low carbon emission indices (such as those in the pre-salt) will be great differentials , within the increasingly selective portfolio of oil companies.

Wood Mackenzie measures market heating trends based on a periodic survey of the number of final investment decisions (FIDs) in the sector. Despite the resumption of projects, analyst Fernanda Pedó points out that the number of FIDs this year should still remain below pre-crisis levels in the world. “The year 2020 was very critical and the trend is for 2021 to recover, but not yet at a pre-2020 level. The trend is that only in 2022 and 2023 will the industry return to pre-crisis numbers”.

The expectation of the international consultancy is that most new FIDs will focus on projects located in deep waters, in markets such as Brazil, the Gulf of Mexico and Suriname and French Guiana, for example.

Rystad Energy estimates that investments in oil and gas exploration and production in the 2020-2021 period have fallen 27% since the outbreak of the covid-19 pandemic. The consultancy predicts that, although they should start to increase slowly from 2022, the oil companies’ spending will not reach the pre-pandemic levels, of US$ 530 billion/year, at least until 2025 — the deadline for the projection.

For the global president of Karoon, Julian Fowles, however, the recent recovery in oil prices “gives more confidence” for the resumption of projects.

“I think [investment decisions] are related to the price of a barrel, which gives us the confidence to invest when we see prices at levels that will give us returns with less risk. But it’s probably also a combination of many years of work in these areas. We have been working with exploration in the Santos Basin for many years.

2020 was a very crazy year for barrel prices, we saw future price contracts go negative and this brought a lot of uncertainty to the market in general. I think today we are seeing a Brent price of around US$70, which gives us more confidence. And, in addition, we are seeing demand return. The whole equation between demand and production is balancing in favor of higher prices,” he says.

Karoon announced this month the FID in Patola, a discovery near the Baúna field, acquired from Petrobras in 2020. The case is an example of how the Brazilian state-owned company’s divestment program should move new projects in assets that had been relegated until then. The Australian company will invest up to US$ 195 million in drilling and connecting two wells to the Cidade de Itajaí platform, responsible for production in Baúna. The drilling campaign is scheduled for the second half of 2022. Karoon estimates that the asset could produce 10,000 barrels/day.

Among the new investments recently announced in Brazil this month, the highlight is Equinor’s FID for the Bacalhau Project (formerly Carcará). The Norwegian company, in partnership with ExxonMobil and Petrogal, will invest US$ 8 billion to produce the field by 2024. Bacalhau will be the first asset to be developed by a foreign oil company in the Brazilian pre-salt. The platform contracted for the first production phase will have a capacity of 220 thousand barrels/day.

This month, Petrobras announced the contracting, for US$ 2.3 billion, of the P-79 — the eighth floating platform (FPSO) in Búzios. The contract was signed with the joint venture formed by Saipem and DSME, and foresees the delivery, in 2025, of a unit with a capacity to process 180,000 barrels/day.

And the list of new projects should continue to grow. Fernanda believes that, for this year, Petrobras should also move forward with the FID for the ninth platform in Búzios and with the project for the excess volumes of the transfer of rights in Itapu.

Source: Valor

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