Brazil's state owned Petroleos Brasileiro SA has asked Brazil's new government to shift gears on oil policy in the wake of the Middle East crisis.
Petrobras recently submitted to the government an ambitious, 5 year, $16.9 billion plan to boost Brazilian crude oil production to 1 million b/d by 1995 from the current 660,000 b/d.
That would put the developing nation at a little more than 71% self-sufficiency, with oil demand projected at 1.4 million b/d by 1995.
The Petrobras proposal represents a reversal of the company's stance last year, when fiscal woes forced it to slash its 1989 budget of $2 billion by half (OGJ, July 3, 1989, p. 27).
Last year's action signaled that Petrobras was virtually abandoning its earlier goal of making Brazil self-sufficient in oil by hiking production to 1.5 million b/d by 1996.
At the time, the financially troubled Petrobras suspended outlays budgeted for the year and planned to spend only to maintain operations. The main casualty of the budget cut was near term development of supergiant Marlim oil field in the deepwater Campos basin off Rio de Janeiro state.
Under the new Petrobras plan, however, a Marlim pilot production system could be producing as much as 50,000 b/d by January 1992.
In addition, Petrobras plans to start up a Marlim "prepilot" early production system scheduled to be on stream early next year. The prepilot also is expected to reclaim the world deepwater production record for a company that has helped pioneer that technology.
A NEW DIRECTION
The turnabout at Petrobras represents a new leadership under Chief Executive Officer Luis Octavio da Motta Veiga.
But it also reflects repercussions from the international trade sanctions following Iraq's invasion and takeover of Kuwait. Brazil has long had a special, multibillion dollar trade relationship with Iraq, involving not only oil but other goods as well.
The loss of Iraq-through its increasing international isolation-as a source of oil supplies as well as a market for Brazilian arms, vehicles, and engineering services has opened a window of opportunity for Petrobras to emphasize domestic energy security through conventional oil and gas development.
The state company apparently wants to distance itself from reliance on alternate fuels, such as the ill-fated alcohol fuels program that has contributed to its fiscal woes (OGJ, July 2, p. 27).
"The best substitute for imported oil continues to be domestically produced petroleum," Motta Veiga said. "This is the solution for Brazil to reduce its dependence upon imported oil."
Brazil consumes an average 1.2 million b/d of crude, of which about 50% is imported-and 85% of those imports comes from the Middle East.
BRAZIL/IRAQ CONNECTION
Officials at Petrobras, which has been cutting outlays the last few years, and top Brazilian government officials, who set guidelines for the state oil company's budget, were shaken by Iraq's invasion of Kuwait.
Iraq's move called into question Brazil's 10 year effort to develop a special trade relationship with Iraqi President Saddam Hussein.
That includes Brazilian exports to Iraq of almost $4 billion, compared with $20 billion Brazil spent for imported Iraqi crude in the 1980s.
Brazil's arms industry has had payments totaling millions of dollars put on hold again by the current crisis. Previously, Brazilian weapons makers had awaited arms sales payments deferred because of the Iran/Iraq war.
Mendes Junior, the big Brazilian construction company, at one time had as many as 30,000 employees in Iraq. It is now unable to receive credits worth about $1 billion for construction projects in Iraq.
Brasilia's courting of Baghdad was sparked by the runup in oil prices during the Arab oil embargo of 1973-74. The Brazilian government decided to intensify its economic relations with the Middle East after the first energy crisis of the 1970s. Iraq's fulfillment of oil contracts with Brazil when supplies were tight strengthened relations between the two countries.
At the time, Brazil depended on imports for about 90% of its oil needs. Brazil's government still considers the 1973-74 oil price shock the root of the country's current economic troubles and $130 billion foreign debt.
The 1970s oil price shocks led Brazilian companies to pursue closer ties with the Middle East. Mendes Junior invested billions of dollars in Iraq, including construction of a 550 km highway between Baghdad and Kaime on the Syrian border.
Further, debt woes and the oil price collapse gave Brazil an opportunity to trim its oil import bill without increasing debt and boost exports at the same time. Brazil undertook a number of countertrade pacts with oil exporting nations, exchanging goods and services for oil. Notable among those efforts are Brazilian sales of arms to Iraq in exchange for oil.
Volkswagen do Brasil and Petrobras struck an agreement with Iraq, calling for export of 150,000 Passat sedans in exchange for Iraqi crude. Exports of the first 100,000 vehicles, worth about $600 million, began at yearend 1984.
Under the arrangement, Iraq sold Petrobras oil at the rate of 20,000-25,000 b/d, while Petrobras in turn paid Volkswagen in local currency the dollar equivalent of each oil shipment to Brazil.
During the Iran/Iraq war, Volkswagen do Brasil helped Iraq truck big volumes of oil to Mediterranean ports, thus avoiding the risky Persian Gulf ports.
The trade ties evolved to cover a large volume of Brazilian weapons sales to Iraq, including tanks, rocket launchers, and military training planes.
Some international nuclear arms analysts have gone so far as to suggest the special Iraqi/Brazilian trade relationship has led to a military association between the two to help Iraq develop an atomic bomb.
Reports published in June 1981 in the British newspaper The Guardian accused the Brazilian government of making clandestine sales of uranium yellowcake. Brazil has not signed the international nuclear nonproliferation treaty.
NEW PETROBRAS TARGET
Motta Veiga vigorously defended the proposed budget increase as required "to at least reach the target of 80% of Brazil's oil needs."
Under the new 5 year plan, Petrobras outlays would be $1.9 billion in 1990, $2.5 billion in 1991, $3 billion in 1992, $3.4 billion in 1993, $3.7 billion in 1994, and $4.1 billion in 1995.
That kind of spending program calls for Brazil's production to climb to 673,000 b/d in 1991, 737,000 b/d in 1992, 773,000 b/d in 1993, 854,000 b/d in 1994, and about 1 million b/d in 1995.
Until the first week of August, Petrobras had planned 1990 outlays of about $1.9 billion, about even with the original 1989 budget and well below spending levels in the 1980s. Plans call for 75% of that spending to go for exploration and development. Spending for other petroleum sectors breaks out as 10% for refining, 7% for terminals and pipelines, and 8% for tankers.
Motta Veiga noted that implementing only the first phase of Marlim development would yield about 190,000 b/d, about as much as Brazil had been importing from Iraq and Kuwait before the invasion.
In the interim, Petrobras is negotiating to line up supplies from other countries to replace the lost Iraqi/Kuwaiti crude.
STUNG BY PRICE HIKE
Petrobras has been jolted by the oil price runup. If prices remain at about $25/bbl, Petrobras payments for imported oil could jump by as much as $1 billion/year, Motta Veiga said.
The spread between what Petrobras pays for an imported barrel of oil and what it receives domestically for a barrel of products has widened so dramatically that top company officials want the government to increase fuel prices by an average 43%.
That request has run into opposition, especially in the Ministry of Economy, because it presumably could endanger President Fernando Collor de Mello's antiinflation program.
According to Petrobras estimates, if the landed cost of imported oil is $28/bbl, the company receives only $13/bbl equivalent for its products.
Petrobras officials contend that for the company to have enough revenues to support capital spending plans, the spread between the price it pays for imported oil and what it receives for its products cannot be more than 15%.
E&D FOCUS
The offshore Campos basin is the focus of Brazil's stepped up E&D effort.
Currently, the basin accounts for 65% of Brazil's crude production.
Petrobras sees the Campos and Potiguar basins as having the best potential for finding more oil in Brazil.
Excluding Marlim and Albacora supergiant fields, the Campos basin currently accounts for about 1.908 billion bbl of Brazil's total 2.8 billion bbl of reserves.
The Potiguar basin, including the northern state of Ceara and the onshore portion of Rio Grande do Norte state, ranks second with 314 million bbl of remaining reserves. Bahia state, Brazil's oldest petroleum producing region, has oil reserves of about 277 million bbl.
In the northeastern basins, notably in Alagoas and Sergipe states, total reserves are pegged at 241 million bbl. Espirito Santo state onshore and offshore reserves are about 14 million bbl. Oil reserves proved to date in the promising Amazon jungle region total only about 5 million bbl.
AMAZON UPDATE
The Urucu region, 600 km west of Manaus in Amazonas state, produces 4,644 b/d of sweet 42 gravity crude.
Urucu oil and gas treating capacity is expected to increase to 20,000 b/d by yearend with start-up of a second train in the Rio Urucu field area (see map, OGJ, Feb. 12, p. 19). Urucu cumulative production totaled 1,876,779 bbl of crude to May 1990.
Petrobras also is installing compressors at the new facilities to reinject Urucu gas currently being flared.
In addition, Petrobras plans to install a diesel topping plant to provide enough motor fuel to meet area demand estimated at 315 b/d. That will generate $600,000/year for the Urucu project.
In 1989, Urucu oil production averaged 3,195 b/d. Amazon capital and operating costs are estimated at $10.20/bbl, not including transport costs of about $4 per barrel. The average cost of importing oil into the region in 1989 was about $18.40/bbl cif.
Petrobras recently approved integrated development of East Urucu field with Rio Urucu field, the region's only producing discovery.
Plans call for construction of a 10 in. oil pipeline and a 23 km paved road linking East Urucu field with the gathering station in Rio Urucu field.
Petrobras has slated 17 development wells for Rio Urucu and East Urucu fields in addition to the four on stream at Rio Urucu. That is a change from earlier plans calling only for 12 wells at Rio Urucu.
In the third phase of the Urucu program, Petrobras plans to install a 21 MMcfd gas processing plant capable of yielding about 988 b/d of liquefied petroleum gas and 94 b/d of natural gasoline.
In addition to a productive capability targeted at 20,000 b/d, including other discoveries in the Solimoes basin region, efforts to utilize Urucu gas could support power generation in Manaus, Rondonia, and Acre states.
CAMPOS EMPHASIS
For the longer term, Petrobras will continue to focus on the Campos basin to achieve and sustain oil self-sufficiency.
Intensive use of 3D seismic in the Campos basin and elsewhere off Brazil has dramatically increased Petrobras' ability to delineate structures with a high degree of stratigraphic control and identify new plays along the continental margin, said Wagner Freire, a geologist and former Petrobras director.
Petrobras reports it is achieving a wildcat success rate of 50% in the deepwater Campos basin, compared with an average 20% offshore success rate worldwide.
Two decades of experience in the basin and use of supercomputers to process seismic data have enabled Petrobras to identify another 13 large structures in the deepwater Campos basin. That points to the prospect of more giant fields comparable to Marlim and Albacora.
The Campos basin currently produces 405,000 b/d and 240 MMcfd of gas.
CAMPOS GIANTS
Petrobras pins its near term hopes of progress toward self-sufficiency on the Campos basin's two giant fields, Marlim and Albacora.
The company believes Marlim could be producing 190,000 b/d by 1995 with an investment of $1.8 billion. Albacora, currently producing 35,000 b/d, could reach 185,000 b/d by 1995 at a cost of $2.7 billion, Petrobras estimates.
Ultimately, says Petrobras, Marlim output could reach 350,000 b/d of oil and about 190 MMcfd of gas by the late 1990s at a total cost of $6 billion.
The resource is huge.
Oil in place at Marlim, a complex of reservoirs covering 160 sq km, is pegged at 8 billion bbl. Petrobras has hiked its probable reserves estimate for the two fields to more than a combined 5 billion bbl, more than the nation's total proved reserves elsewhere.
The costs of developing Marlim and Albacora will be equally huge. Motta Veiga estimates total capital and operating costs for full development of both fields at about $10/bbl.
Most of the Campos basin's probable reserves lie in deep or ultradeep waters. By yearend 1988, Campos basin probable reserves were pegged at about 6.6 billion bbl. That breaks out to 2 billion bbl in water less than 400 m deep, 2.6 billion bbl in 4001,000 m of water, and 2 billion bbl in more than 1,000 m of water.
Most Campos oil reserves in more than 400 m of water remain undeveloped.
MARLIM EARLY PRODUCTION
Petrobras soon will change that situation with its planned prepilot in Marlim, where water depths are 600-1,000 m.
Last year's budget cuts delayed Petrobras' plans to install a pilot production system in Marlim field, now scheduled for start-up in January 1992.
Petrobras turned to a new generation of guidelineless, deepwater, wet Christmas trees it had on order to implement the prepilot's extended early production test in Marlim.
As part of that project, Petrobras plans to install one of the trees in 721 m of water and a monobuoy to serve as a floating production system in 400 m of water by November. It plans a second well as part of the prepilot in 512 m of water.
It is the second of a new generation of wet Christmas trees designed to operate in water depths of as much as 1,000 m. Petrobras installed the first in about 400 m of water in Marimba field earlier this year (OGJ, Feb. 12, p. 20). The trees weigh 53 tons and stand 11.5 m tall.
CBV-Industria Mecanica SA, Rio de Janeiro, is supplying 10 such deepwater wet Christmas trees under a $15 million contract.
With the Marlim prepilot's deepest water depth well in 2,365 ft of water, Petrobras will reclaim the world water depth record for production from the Placid Oil Co. group that installed a floating/subsea drilling and production system in 2,243 ft of water in the Gulf of Mexico. That project was shut down as uneconomic earlier this year (OGJ, Apr. 23, p. 30).
In addition to reclaiming the water depth production record and installing the first guidelineless wet Christmas trees in ultradeepwater, the prepilot will set a record for deepwater installation of a monobuoy, Petrobras said.
The company estimates production from the 3 Marlim well in 721 m of water will peak at 9,400 b/d. Depending on drilling results, Petrobras will tie the 4-RJS-413D well into a floating production system (FPS), the converted Petrobras XIII semisubmersible complete with a small onboard oil separation plant.
Installation of wet christmas trees in Campos basin in increasingly deeper water has advanced since Petrobras installed the first one in 123 m of water in 1979. In January 1988, Petrobras had a record water depth diverless well completion in 492 m of water in Marlim field.
WELLSTREAM CONTRACT
Meantime, Petrobras let contract to Wellstream Corp., Houston, for supply of flexible pipe flow lines and dynamic flexible riser for the Marlim prepilot.
Wellstream will supply more than 20 km of 3,000 psi flexible pipe that breaks out as 10.22 km of 2 1/2 in. gas lift line, 1.66 km of 4 in. dynamic flexible riser, and 8.56 km of 6 in. flow line.
Under the contract, the two prepilot wells will be tied back to the FPS. The subsea system will be installed with a diverless, guideless, layaway wellhead with surface-completed and tested flexible pipe hookup.
Delivery of the total order is to take place in December, with installation planned for February 1991. Wellstream also will supply end connections, bend restrictors, and other equipment.
LATER MARLIM PHASES
The $10 million prepilot will furnish reservoir and well performance data ahead of the pilot and full development phases. The same monobuoy used in the prepilot will be retained for the pilot.
The $320 million pilot plan calls for 10 wells in the northern portion of the complex in 600-800 m of water. Pilot production will be handled by the Petrobras XX, formerly the Fortuna Ugland flotel, stationary production unit.
After separation, oil will flow to two monobuoys at the rate of 50,000 b/d. Marlim gas will move by pipeline to the Garoupa field platform and then to shore.
In 1994, the first full phase of Marlim development is expected to go on stream. Plans call for installation of two platforms in as much as 1,000 m of water, with flow to reach 190,000 b/d.
In 1997, second phase development calls for another five platforms in Marlim complex to build production to a peak of 350,000 b/d.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.