Brazilian officials have issued conflicting statements concerning the potential impact of the current global financial crisis–as well as other issues–on the exploration and development of the country’s subsalt layer.
Brazil’s mixed capital oil and gas firm Petroleo Brasilerio SA (Petrobras), due to the current financial crisis, has postponed to 2009 its construction tenders for 28 deep-sea drilling rigs, according to Jose Jorge de Moraes Jr., the firm’s general manager for new business in the exploration and production department.
De Moraes said Brazil had hoped to have some 14 rigs drilling in the subsalt blocks in 2012 and producing 1 million b/d in 2015, but current problems with financing had undermined the plan.
“There are no longer the conditions to issue the tender this year,” said de Moraes, who added that the current price of oil at around $60/bbl is an impediment to developing the subsalt layer–considered a priority area for Petrobras.
While acknowledging the current problems, de Moraes nonetheless said the economic crisis may eventually lead to lower prices for rigs and allow Petrobras to cut its costs for exploring and developing the subsalt layer.
High cost, tight market
De Moraes’ views about current impediments fit observations by analyst BMI, which said that in the medium term “oil prices of around $60/bbl, tight capital markets, and uncertainty surrounding the impending reform of Brazil’s licensing framework may inhibit subsalt development.”
BMI thinks “the Deloitte Petroleum Service’s estimated required crude oil price of $90/bbl for profitable subsalt development is a more realistic assessment of the challenge of producing oil from 7,000 m.”
The BMI view contrasts with remarks by mines and energy minister Edison Lobao, who is on record saying oil and gas production is viable at Brazil’s subsalt reserves even with oil at $60/bbl.
“It’s perfectly possible to exploit subsalt oil at this price. Of course, for the good of the country we’d want a bigger gain,” he said (OGJ Online, Nov. 4, 2008).
‘No delays,’ says minister
Lobao has not changed that view, this week telling the Estado news agency that the ongoing global financial crisis will not cause delays to the development of the subsalt oil reserves.
“The subsalt layer will not suffer any delays,” said Lobao, who earlier in the week had said, “We are not going to stop spending” and that, “All these investments will be fully accomplished.”
Estimates vary on development costs for Brazil’s subsalt oil and gas reserves, with one Brazilian official saying up to $400 billion in investment could be required over the next 10 years.
Haroldo Lima, director of Brazil’s hydrocarbons regulator Agencia Nacional do Petroleo (ANP), also said that his $400 billion estimate was not very precise and that subsalt reserves should be at least 50 billion bbl of oil, possibly reaching 80 billion bbl.
Estimates of the subsalt layer’s reserves also have varied among Brazilian officials.
Demuring on estimates
On Nov. 13, Petrobras said it was premature to speculate on the size of the subsalt oil reserves, a statement that came just a day after Lobao told analysts and investors at a luncheon in New York that the subsalt reserves could hold “50-150 billion bbl of oil of the finest kind.”
At the time, Lobao observed that estimated recoverable reserves of 12 billion boe had been confirmed so far, but that, on the basis of reports by analysts and experts, “a much larger number would not surprise us.”
Petrobras responded that estimates of reserves are possible only after declarations of commerciality. Refuting Lobao, the Brazilian firm said, “In light of the articles published in the press about estimates in the subsalt, Petrobras reaffirms the figures it has already given.”
Petrobras and its partners have announced discoveries estimated at 8-12 billion boe at the Tupi and Iara prospects in the Santos basin in the past year, while several other new subsalt prospects are said to have potentially large reserves.
Balancing investment versus reserves, BMI underlined the issues of development off Brazil: “While the potential of Brazil’s subsalt acreage appears vast, so too do the challenges and costs of extracting oil and gas from total water depths exceeding 5,000 m and a further 2,000 m of rock.”
Oil law delayed again
Meanwhile, officials also continue to disagree concerning revisions to the country’s oil law.
According to Lobao, changes will be designed in a way to maintain the interest of foreign investors in the country, and the new regulatory model covering the subsalt region will maintain the “attractiveness” of the area for investors.
That assumes that the law is issued, and soon–something that Lima said might not happen until next month, possibly just ahead of the country’s latest licensing round on Dec. 18-19.
Lima, who spoke at the Foreign Relations Committee of Brazil’s Chamber of Deputies, said the interministerial committee considering changes to the oil law “should be” ready to deliver its report to President Luiz Inacio Lula da Silva at the start of December–months later than previously announced.
“The committee is not working under the pressure of a deadline,” said Lima. “We’ve already forecast the conclusion of work two or three times, but the deeper we study the matter the more questions are raised.”
The commission was expected to present proposals to Lula by Sept. 19, but ANP announced at the end of August that meetings would likely continue 2 additional weeks, continuing through the start of October.
According to the state news agency, that delay was occasioned by a failure of panel members to reach a consensus on how best to maximize development of the country’s promising subsalt oil deposits (OGJ, Oct. 20, 2008, p. 29).