Click here to view the email in the browser

May 2021

Underlying fundamentals supporting regional investment are solid

Webinars

We are adapting to the current digital workplace and hosting numerous webinars going forward, some on short notice. Follow our webinar page to make sure you don't miss out on any relevant content for you.

 

2nd Annual Americas Digital Energy Forum
May 19, 2021 at 9:30 - 11:30am CDT 
>> Learn more and register

COVID-19 Report

Rystad Energy's public version of the COVID-19 Report will be updated monthly, offering scenario analyses, and evaluating the impact on global energy markets. >> Access here

Hydrogen Society Report - Free Adition

Download this month's free edition of the Energy Transition Report Series. 
>> Read More     

Newsletter Subscription

If you are not yet a subscriber to our industry newsletters and want to get monthly updates, please fill out the Newsletter Subscription Form.

Message from our Senior Vice President of Consulting Latin America Mr. Daniel Leppert

Bem-vindos, bienvenidos and welcome again to the May installation of the Latin America Newsletter. Latin America is set to be one of the fastest growing regions globally in terms of upstream investments in the coming decade. A combination of giant new discoveries such as the ones seen in Guyana and Suriname, coupled with a recovery of brownfield expenditure primarily in Brazil and Argentina, provide the necessary components for sustained investment growth in the region. 

Recent exploratory success has put Suriname on the world oil map, with cumulative recoverable resources in the order of 1.9 billion barrels of oil equivalent as estimated by Rystad Energy. For a perspective on the significance of this volumes, when considering a ranking of countries by total oil resources discovered since 2015, Suriname ranks fourth, only behind Mexico (3rd), United States (2nd) and Guyana (1st). These assets, when developed, have the capability of significantly boosting Suriname’s economy.  

Annual brownfield spending in South America is due to recover this year after a dull 2020. Brazil is expected to lead this rebound, and it is worth mentioning that apart from the core producing fields, Petrobras’ divestment of mature brownfield assets has successfully attracted new entrants into the onshore and offshore space seeking to both revamp and extend field production. In the case of Argentina’s Vaca Muerta, we have already seen fracking activity rebound this year, and we expect both Argentina and Colombia to lead spending in the well services and commodities space.

Unfortunately, recent strikes in the Vaca Muerta literally forced operators to shut-in production during April. Although the strikes have ended, it has significantly impacted operators’ drilling plans, which could possibly further delay the production ramp-up of the shale play.

Although above ground risks can certainly curtail momentum, it is important to remember that E&Ps have traditionally operated in riskier places. Generally, if the prize is great enough risk tolerance increases, and in the case of Latin America, the underlying fundamentals supporting regional investment are still solid.

Suriname – Latin America’s hot spot for profitable exploration 

Suriname took a giant leap last year with a series of game-changing discoveries, including four on Total and APA’s Block 58 and one on Petronas-operated Block 52. Rystad Energy estimates these discoveries hold cumulative recoverable resources of around 1.9 billion barrels of oil equivalent. These assets, when developed, could boost Suriname’s economic fortunes and generate outstanding revenue for the government. We expect the net present value of projects on Suriname’s 11 active blocks to be significant, with a potential to generate substantial cash flows for both state player Staatsolie and international oil companies even in a low oil price environment.

Production sharing contracts (PSCs) allow Staatsolie to exercise participation rights of up to 20% when field development plans are approved, and the company has already indicated interest to farm in to Block 58. The country’s five discoveries so far are in the early stages of exploration. Short-term exploration/appraisal operations will help identify the play concept and pool limits as well as estimate the actual resource potential and decipher commerciality. When commerciality is established, a one-year period will be triggered in which Staatsolie will have to conclude its participation procedure.

Rystad Energy expects production from Blocks 58 and 52 to commence by the end of this decade and grow to about 650,000 barrels per day by early 2030 (Figure 1). Provided Staatsolie exercises its right to farm in to Block 58, for instance, it would cost initially between $1.5 to $2 billion and its partaking in future development phases could double, with capex peaking in the years 2028 and 2031 (Figure 2). The company plans to conduct an international roadshow to promote a financing project for its own participation. Financing options include bank loans, private financing, and an initial public offering, which Staatsolie aims to pursue by developing close partnerships in Latin America, the Middle East and Asia.

Vaca Muerta strikes result in slow down of activity at a critical growth juncture 

The oil production rebound at the prolific Vaca Muerta shale play so far in 2021 is facing a literal roadblock, as protestors block roads and infrastructure around the oil and gas region, which has operators to shut-in production in April, with outages potentially spilling into May. The strikes, led by healthcare workers, have partially halted production at the play. Rystad Energy expects the shale play’s oil production to have curtailed by 10,000 barrels per day (bpd) in April due to the strike. Although the strike was called off on 29 April, a slow reactivation is expected at the fields which means growth is also expected to be lower in May compared to what was expected previously. Adding to the loss in growth production, the strike has also significantly impacted operators’ drilling plans, which could possibly further delay the production ramp-up of the shale play.

Brownfield spending in South America to rebound after a dull 2020

 

Annual brownfield spending in South America is due to recover this year after a dull 2020, with more than half of the expenditure lined up for Argentina and Brazil. Rystad Energy expects purchases worth $27 billion in 2021, around 20% higher than last year. As fields mature across the region, assets will be exposed to increasing brownfield activity levels, with the service categories maintenance & operations and well services & commodities expected to drive spending, which, by 2023, could surpass 2019 levels.

Over 60% of the brownfield spending – expenditure that starts two years after a field’s start-up – is expected to be concentrated in Argentina and Brazil, countries which contribute with more than half of South America’s oil and gas production volumes. Maintenance & operations and well services & commodities are expected to amount to a cumulative value across the region of $20 billion in 2021.

The well services and commodities purchases – comprising stimulation, completion and re-entry services –  are driven primarily by onshore assets in Argentina and Colombia. In Argentina, for instance, this is due to the drilling that takes place in the later stages of life of a field to enhance production (infill drilling), as well as horizontal drilling activity. In the Vaca Muerta shale play in the country, we have already seen fracking activity rebound this year. However, it is important to note that the well services and commodities segment, while led by drilling and completion activity, is consequently very sensitive to the oil price. As a result, potential market fissures in response to a serious second Covid-19 wave across the region could dampen drilling activity.

The maintenance and operations segment – comprising inspection and maintenance as well as facility leasing –  is expected to see significant demand from offshore assets, as FPSOs have been gaining prominence across South America. While offshore prospects are likely to see an increase in total brownfield spending this year of around 30% compared to 2020, projects are likely to witness only a modest increase in operating expenditure (opex) per barrel of oil equivalent (boe) of about 10%, as we see from our cost benchmarking report. This can be attributed to companies working to maintain a younger field profile and owning FPSOs instead of leasing units, like Brazil’s Petrobras is increasingly doing. This move applies downward pressure on opex.

Since the start of the pandemic, the Brazilian real has been losing value against the US dollar. Coupled with local price inflation for industrial goods, which could mean cheaper procurement costs for players with sizeable USD reserves, this could result in meaningful cost effectiveness for the signing and execution of brownfield contracts.

In terms of supplier revenues in South America, Schlumberger, SBM offshore, Modec, Baker Hughes, and Halliburton had a market share of over 40% in 2020. Rystad Energy expects these companies to continue leading in 2021.

Our articles and commentaries 

The above are samples and extracts from the full commentaries we offer in our Client Portal, which is part of our comprehensive energy intelligence offering. You may also find relevant content of interest in our press releases, freely accessible here.  

 
 
 

Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. We are headquartered in Oslo, Norway with offices across the globe.

If you do not wish to receive any future emails from Rystad Energy, please click here.