Petroleo Brasilerio (Petrobras), Brazil’s state-controlled oil company, has become a force to be reckoned with in the Gulf of Mexico (GOM). Over the past two years, the producer has quickly become a major foreign investor in the U.S. offshore, outbidding its rivals to obtain key tracts auctioned by the Minerals Management Services (MMS) in the western GOM.
To be sure, the GOM is not the only place Petrobras has dedicated its time and money. It now invests in at least 18 countries on three continents. But its stance as a player in the GOM has grown considerably in just a few years through U.S. lease sales and farm-in agreements with both majors and independents. In Wednesday’s Western GOM Lease Sale 200, Petrobras repeated its winning formula of a year ago, offering the highest number of bids for tracts, and it also made some of the highest bids in the auction (see related story).
Before the MMS lease sale on Wednesday, Petrobras America held 212 blocks in the U.S. GOM, and it was the operator of 73 of the prospects.
By most standards, the proven reserves of Petrobras in the U.S. GOM are still modest — 36.03 million boe, with production of 6,700 boe/d. But Petrobras America said the “potential growth of the operations and new discoveries is excellent, especially when considering the proven reserves of the oil fields already discovered and the implementation of relevant production development plans.”
At a time when other producers are using mergers to stockpile reserves or using stock buybacks to appease shareholders, Petrobras has aggressively invested in new plays, especially in the deepwater, using innovative drilling expertise and floating production, storage and offloading (FPSO) platforms in offshore fields around the world. Unlike many Central and South American rivals that prefer to keep their investments at home, Petrobras is opening up its wallet, with plans to spend nearly $3 billion through 2011 in the U.S. GOM.
“The priority is no longer ensuring Brazil imports enough oil,”‘ said Nestor Cervero, director of international operations. “Our international strategy is now about new markets and expanding the business and brand.”
Petrobras has set aside $12.1 billion to spend outside of Brazil between 2007 and 2011. Of that, 28% ($3.3 billion) will be allocated in Latin America, 23% ($2.8 billion) in North America, 16% ($2 billion) in Africa, and 33% ($4 billion) in new projects. Almost all of the North American money will be spent in the deepwater GOM.
Although it has not been considered by some to be a North American contender, Petrobras has been operating quietly in the United States since 1987, when it acquired some shares from Texaco in eight GOM blocks. In the past 19 years, its Houston-based subsidiary Petrobras America Inc. has intensified its operations through farm-in agreements and MMS lease sales. Through such business deals, Petrobras has gained recognition for the technology it has used in developing its deep and ultra-deep water operations.
“Petrobras is an exception,” said PIRA Energy Group’s Lawrence Goldstein. “They are going outside their borders, exploring new opportunities and diversifying…unlike most other state companies.”
Since 2002, Petrobras has participated in a series of ultra-deep water discoveries in the GOM. Petrobras America and its partners Devon Energy Inc. and BHP Billiton discovered the deepwater Cascade accumulation in 2002 (see Daily GPI, June 4, 2002). From there, the U.S. subsidiary rapidly contracted other blocks, and in 2003 took part in the Chinook and Saint Malo discoveries.
Earlier this month, Petrobras and Devon bought out their BHP Billiton partner and now own a joint 50-50 stake in Cascade, and Petrobras upped its stake in the Chinook to more than 75% (see Daily GPI, Aug. 16). Petrobras also is operator of both blocks. Cascade and Chinook are located in the Walker Ridge Outer Continental Shelf leasing area in water 78,000-91,000 feet deep.
“Given the technological and operational challenges that these developments pose, Petrobras will pursue a fast-track, phased development approach, with first oil scheduled for 2009,” the company said of Cascade and Chinook. “Initially, at least two Cascade wells and at least one Chinook well will be completed and brought onstream through a Floating Production Storage and Offloading facility. Subsequent wells and facilities will be designed in accordance with the initial production results.”
Petrobras called the Cascade and Chinook fields “enormously important” for its U.S. efforts. “In addition to tapping into Paleogene oil reservoirs never developed in this ultra-deep water region, it will deploy a development concept based on a FPSO, new to the U.S.A. waters, but very familiar to Petrobras in its operations offshore Brazil.”
But Petrobras will do more than employ what could be the first-ever FPSO in the GOM. In 2004, Petrobras America won the bid for 37 blocks in a quadrant of the GOM called Corpus Christi, in water varying in depth from 500-2,000 meters off the Texas coast. On that prospect, Petrobras is the operator and holds 100% of the stake. It plans to drill its first wildcat this year.
While its top priority has been oil, natural gas also is on the minds of Petrobras and the government. Earlier this year, Bolivia, Brazil’s leading gas supplier, began to nationalize its oil and gas sector, which will require Brazil and others to renegotiate their contracts. To deal with what could be a shortage of gas supplies, Petrobras said in early August it would build at least two regasification terminals to import liquefied natural gas (LNG).
All told, Petrobras is planning a total of $22.1 billion worth of gas projects between 2007 and 2011, said Ildo Sauer, director of Petrobras Gas and Energy.
“It’s about guaranteeing security of supply, with reliability and redundancy,” said Sauer. “We are not seeking self-sufficiency in gas production.” Sauer said Petrobras has several gas projects under way in the GOM, Venezuela Angola and Nigeria. Within a few years, he said, Petrobras hopes to be able to ship LNG to Brazil from those locations or sell it to third parties.
Among its holdings, Petrobras and Shell are jointly developing the Coulomb North field, in block MC 613, a field discovered in April 2004 (see Daily GPI, July 1, 2004). This discovery, operated by Shell, is the current world record in ultra-deep water production (2,031 meters). Coulomb-3 well (C-3), discovered with Petrobras’ participation, has around 40 meters of natural gas reservoirs. The companies next plan to drill the Zion and Bryce prospects, operated by Petrobras, which are close to the Coulomb North field.
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