Brazil E&P – delays drive short-term slowdown

July 1, 2016

Authors: Olga Kerimova, Senior Analyst, and Theodora Batoudaki, Analyst, Rystad Energy

Publisher: PESGB Newsletter, July Edition

Brazil’s production and investment growth is expected to slow down in the short term as the country’s E&P’s industry continues to be plagued by corruption, political uncertainly and FPSO delays. This article assesses the outlook for the Brazil E&P industry, illustrated by three key drivers: production, exploration success and spending.

Figure 1 shows Brazil’s total production, split by projects, from 2010 to 2020. Production levels were stable at around 2.4 million boe/d in 2010-2013 and are expected to grow to 3.9 million boe/d (85% crude oil) by 2020, around 200 thousand boe/d lower than the Rystad Energy estimate from May 2015. Based on the latest business and management plan 2015-2019, Petrobras has revised downwards its 2020 production estimate by about 30%, from 5.3 million boe/d to 3.7 million boe/d. However, even with the revisions, which are also reflecting FPSO delays in Buzios and later phases of Lula, Brazil’s production is set to grow by 7% yearly over the next four years. Production growth in 2016-2020 is driven by major offshore Petrobras-operated fields Lula, Roncador, Sapinhoa and Buzios, which are expected to grow jointly by 850 thousand boe/d. The contribution of Lula to Brazil’s production volumes is estimated to rise from 13% in 2015 to 25% in 2020. The impact of the delays is more visible in 2018, as total production is expected to grow to 3.2 million boe/d instead of 3.6 million boe/d (May 2015 forecast). In late May 2016, Petrobras announced its plans to reinvest capital in the Mexilhao field in the Santos Basin and Bonito and Enchova fields in the Campos Basin, in an effort to boost production.

 

 

Figure 2 shows the discovered volumes for Brazil from 2005 to 2015. By far the best year for exploration in Brazil was 2010, when over 14 billion boe were discovered (almost all offshore, mostly in the Santos Basin). The Libra and Buzios discoveries make up almost 90% of the 2010 discovered volumes. Other large discoveries include the Lula field (2006 and 2009), as well as Iara, Jupiter and Sapinhoa discoveries (2008). Since 2010, there has been a visible reduction in discovered volumes. However, significant production contributions are expected from the discoveries that have been made in the past ten years, although the timing of these remains somewhat uncertain. Most of discoveries are not yet sanctioned, with the exception of Lula, Sapinhoa, the early phases of Buzios and the Atapu South and Berbigão/Sururu fields (Iara project), with the latter expected to be put on production by 2018/2019.

 

Figure 3 displays the total spending in Brazil over the period 2010-2020. Investments (capex and exploration capex) are projected to decrease around 15% year-over-year in 2016 and remain around $24 billion over the next two years. Recent production start-ups of fields within the Lula and Sapinhoa projects (where a large part of the development cost has already been incurred), as well as ongoing corruption allegations and lower oil prices, contribute to decreased investments in 2016-2018. From 2019, investments in Brazil are expected to increase reaching about $32 billion in 2020. The Libra, Iara (Atapu North) and Pao de Acucar discoveries contribute significantly to this growth. The operating costs (opex) are expected to double by 2020, compared to 2010. This is primarily because most of the phases of the large projects such as Lula and Sapinhoa started producing in 2013-2014 or are expected to come online in 2016-2018.


Conclusion
Brazil’s output is expected to grow by 7% over the next four years, with Lula playing a leading role in the growth. However, in the period 2016-2018, production is expected to increase by only 4%, while a 7% production growth was expected a year ago for the same time horizon. FPSO delays is the main reason behind the country’s production revisions. In addition, the drop in oil prices, along with completion of construction for new phases of Lula and Sapinhoa, and corruption concerns, are contributing to relatively flat investments from 2016 to 2018.

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Article Contacts

Contact: Olga Kerimova, Analyst
Phone: +47 24 00 42 00
olga.kerimova@rystadenergy.com

Contact: Theodora Batoudaki, Analyst
Phone: +47 24 00 42 00
theodorab@rystadenergy.com

About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.

Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro) and Singapore.