Despite high declines from mature fields, and supply disruptions in Venezuela, South American production is slated to see a new growth wave, supported by supply additions from new projects in Brazil and shale developments in Argentina. This article assesses the outlook for the South American E&P industry, illustrated by three key drivers: production, economics of new projects and capital investments.
Figure 1 shows South America’s total production, split by countries, from 2010 to 2025. The region’s supply has been decreasing since 2016, averaging 10.6 million boe/d last year, and is expected to fall to 10.5 million boe/d in 2019. Brazil is the largest producer in the region, and the only country that has been increasing production despite the downturn, with production growth secured by the high level of investments made before the oil price collapse (most notably in the Lula (x-Tupi) project). Brazil is also where we expect to see production growth in the short to medium term, with key contributions from the Buzios, Iara and Mero (Libra NW) projects. Venezuela, on the other hand, has been the main contributor to decreasing production in the region. The country’s supply had plummeted from 3.6 million boe/d in 2013 to 2.2 million boe/d in 2018. This year, the decline further exacerbated by U.S. sanctions, Venezuela’s oil and gas production is expected to average 1.7 million boe/d (around 0.9 million bbl/d crude oil). Other South American producers, with the exception of Argentina where supply will be supported by the Vaca Muerta Shale and other shale and tight gas developments, are forecasted to see declining supply over the next five years, with Colombia expected to struggle the most to mitigate the high base decline from mature fields. Guyana, with its recent discoveries in the Stabroek block, may contribute to the continent’s oil and gas supply already from next year. Liza phase 1 is expected to start production next year, phase 2 coming online by 2022, and the Payara and Pacora discoveries are slated for sanctioning in the first half of next year.
Figure 2 depicts total recoverable conventional resources and breakeven prices as of the sanctioning date for the top discoveries expected to have FID in the next ten years in the countries that are the main contributors to the supply in South America - Brazil and Venezuela. Brazil not only is the main producer in South America, but it also holds the largest potential in terms of undeveloped resources. The largest unsanctioned field anticipated to come online in 2024 is Carcara Phase 1, holding nearly 1,000 million boe of resources and having a breakeven oil price of around $48 per barrel. Also, fields in Mero (Libra NW) project are currently anticipated to start producing by 2023-2024 already, each holding ~750 million bbl of liquids. These fields are estimated to have a breakeven oil price of $50-60 per barrel. In Venezuela, the second phase of Junin-5 is the largest field in the pipeline to be developed, holding over 1,600 million boe of liquids resources. Together with Junin-4, coming online a couple of years before, the fields account for nearly 3,000 million boe of undeveloped liquids resources, which would be essential for the country’s longterm performance. Development of these fields has been continuously postponed over the last years, accounting for ongoing supply disruptions and US sanctions. In general, the top liquids discoveries in Venezuela are estimated to have a breakeven oil price of below $50 per bbl, making them commercial for development in the current price environment. In terms of gas fields, phase 2 of the Perla field and Rio Caribe are among the largest unsanctioned discoveries, which hold around 400-600 million boe of resources and are expected to come on stream in 2026. The fields are estimated to have a breakeven gas price of $4.2 and $6.4 per kcf, respectively.
Figure 3 displays the capital investments in South America over the period 2010-2025, split by life cycle. Investments have seen a steady decline from the peak levels of around $50 billion in 2012-2015, to around $31 billion in 2018. However, investments are forecasted to grow in 2019, increasing to over $45 billion by 2025. The new investment cycle is led by new projects under development or expected to be sanctioned in the near term in Brazil and Guyana, as well as investments in the Vaca Muerta Shale and Neuquen Basin Tight gas projects in Argentina. In Brazil, key contributions are expected from the Iara (Atapu North), Marlim revitalization, Buzios and Mero projects. Post 2020, investments are also expected in the first phase of the Equinor-operated Carcara field and the Petrobras-operated Lula Oeste field. The Liza discovery in Guyana will also contribute to the short-term investment growth, with additional medium-term contributions from the Payara and Pacora discoveries in the same block.
Production in South America has been exhibiting a decline phase since 2016, primarily driven by the fall in Venezuelan output. Yet, the region might be on the verge of a new growth wave that is anticipated to begin by 2023, led by discoveries in Brazil and shale development in Argentina. Venezuela, on the other hand, given the current supply problems, is expected to continue to produce at low levels well until 2030. Nevertheless, the country holds large undeveloped resource potential, which would be a fundamental factor for output recovery in the long term.