Statoil gains control over Brazil pre-salt project Carcara

August 3, 2016

By Kjetil Solbraekke, Head of Brazil, and Per Magnus Nysveen, Head of Analysis

Exactly 10 years ago, Petrobras discovered 8 billion barrels of oil in the Lula field, which is located under one thousand meters of fossil salt in ultra-deep waters off Brazil. Since then, Petrobras has found almost 30 billion additional barrels and some 15 billion barrels of pre-salt oil are now being developed. Yet, these huge reserves have not been the boon for Petrobras that most investors expected. While majors’ share prices remained relatively flat from 2009 to 2015, PBR’s stock fell 90% during the same period. However, the Brazilian government is cautiously loosening Petrobras’s monopoly as pre-salt operator and is expected to allow for greater involvement by international oil companies going forward.

In October 2013, the government auctioned off a 60% share in the giant Libra field—which contains around 9 billion barrels of recoverable oil—to Shell, Total, CNOOC and PetroChina for a combined cash price of 4 BUSD. The auction, however, garnered limited international interest and underscored the need for deeper reform. The Federal Senate subsequently approved legislation repealing Petrobras’s role as sole operator and mandatory stakeholder in pre-salt projects, with final approval by the National Congress expected in the near future.

In June 2015, Shell acquired BG Group for 70 BUSD. It thus gained access to global LNG assets in addition to 3.5 billion barrels of pre-salt oil in the BM-S-9 and 11 blocks, which contain the mega fields Lula, Iara and Sapinhoa. These mature pre-salt projects accounted for approximately 40% of the BG deal’s value.

Then, on July 29 2016, Statoil agreed to pay 2 BUSD (present value) for operatorship and a 66% share in the 1 billion-barrel Carcara discovery in the BM-S-8 block, making the Norwegian major the first international oil company to acquire operatorship in Brazil’s giant pre-salt fields. In contrast to Libra, Carcara field developers may report and sell all production from the field. The deal implies 4 USD/bbl for pre-development oil, with a breakeven price currently estimated between 55-75 USD/bbl depending on well productivity, development costs and actual field size.

The BM-S-8 block originally included the Bem-Te-Vi field, which was discovered in 2008. In 2011, Shell sold 20% of the block to local players Queiroz Galvao and Barra Energia for 350 MUSD. The Carcara field was discovered in 2012 during the appraisal process of the presumed northern flank of the Bem-Te-Vi discovery, whose license was subsequently carved from the block and returned to the government. Three exploration wells have thus far confirmed that Carcara holds an oil column of up to 500m over a large structure of about 4x4 km, with some of the oil-bearing structure likely extending north of Statoil’s new block. Carcara is the only discovery to date in Statoil’s new block, although the Guanxuma prospect in the block’s southwest corner provides further exploration upside.

Rystad Energy closely tracks the production performance of each pre-salt well in Brazil. The highest recorded initial pre-salt production rate was reported at South Lula, where one well initially produced 60,000 barrels of crude oil per day, although production fell steeply to 20,000 bbl/d after six months. The first full-scale test well on Lula still produces around 20,000 bbl/d after five years, which is one of the most productive offshore wells ever recorded. At this productivity level, 8-10 wells will typically be needed to produce at full capacity from a large floating platform or full-sized FPSO with 150 kbbl/d production capacity.

The main challenge for Brazil’s pre-salt development stems from advanced drilling operations in corrosive salt and hard carbonate reservoir rocks containing chert/flint. Given the world-class productivity of the pre-salt wells, however, breakeven prices are now trending below 40 USD/bbl for some of the most attractive pre-salt fields. Thus, Statoil has truly exciting prospects ahead. The company is expected to make a final decision on Carcara field development in the next 3-4 years, with first oil production expected 8-10 years from now.

Brazil is the world’s largest offshore oil region. The growth potential is high, with its pre-salt fields being the most productive in the world. Statoil has the competence and position in Brazil to play a very important role. The timing by Statoil is excellent and Brazil is now becoming the most important area for Statoil outside Norway.

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Article Contacts

Kjetil Solbreakke
Phone: +55 (21) 98458-6645
kjetil.solbraekke@rystadenergy.com

Per Magnus Nysveen
Phone: +47 24 00 42 00
per@rystadenergy.com

Julia Weiss, VP Marketing
Phone: +47 48 29 87 61
julia.weiss@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.