Awash in Cash, Brazil’s Petrobras Dreams of Becoming an OPEC Member

State-controlled Brazilian Petrobras an expert in deep-water oil explorationPetrobras, Brazil’s state-owned oil company, has plans to spend US$ 12.1 billion in projects abroad between 2007-2011, or 14% of its total US$ 87.1 billion investment budget for the period. In Brazil’s earlier five-year plan, covering 2006-2010, it had planned US$ 7.1 billion in international spending, or 12.5% of its $ 56.4 billion total investment forecast.

Whereas state oil companies in Venezuela (PDVSA) and Mexico (Pemex) are largely only involved in E&P activities in their home countries, Petrobras is clearly on a push to control oil and gas reserves in most, or all, of the world’s major producing regions. In this sense, Petrobras is beginning to look at least a little like a major oil “multinational” itself.

There are some good explanations for this. First of all, Brazil is the planet’s eighth-largest energy consumer, and in 2005 produced and consumed around 1.71 million barrels a day of liquids, or 2.2% of world demand. However, Brazil’s 11.8 billion barrels of proved liquids reserves at the end of 2005 represented just under 1% of the world total of 1.2 trillion barrels in proved liquids reserves, according to BP’s annual statistical analysis of world energy.

Petrobras has recently expanded its drilling plans in areas such as Venezuela, Turkey, Iran, Angola, and the US Gulf of Mexico. By increasing its representation in these regions it is branching out into some world regions where oil is more abundant than it is in Brazil. According to BP data, South and Central America hold 8.6% of world liquids reserves, the Mideast holds 61.9%, Europe/Eurasia 11.7% and Africa 9.5%

Partnerships

Petrobras has been in high demand for joint-venture partnerships in deepwater projects throughout the world, a testament to the drilling expertise it honed at Campos basin. But some Brazilians wonder whether Petrobras is going too far afield, or forsaking choice drilling territory right under its own nose.

On one level Petrobras is expanding globally, as well as at home, because it has the cash to do so. Petrobras wracked up a record profit of US$ 11 billion in 2005. That compares to a net loss of US$ 3.75 billion in 2005 for Pemex, Latin America’s largest oil producer, which is saddled with debt and the burden of high tax payments to the Mexican government.

Venezuela’s PDVSA, the other regional oil giant and the only Latin member of the Organization of Oil Producing Countries (OPEC), has stopped reporting its earnings since 2004, and while its revenues have soared, its investment budget for oil and gas activities hasn’t.

Major Cash

Petrobras’ comfortable financial position gives it investment cash on par with many oil supermajors. The company’s capital expenditures (CAPEX) for 2005 were US$ 11.9 billion, not such a far cry behind ExxonMobil (US$ 17.7 B), Shell (US$ 17.4 B), Total (US$ 14.8 B) or BP (US$ 14.2 B). Petrobras’ capex budget for 2006, of around US$ 17.4 B, could push its spending beyond that of some of those foreign majors.

The private majors, however, produce the most part of their oil and gas outside of their home countries or regions, where reserves have been dwindling for years. Petrobras produced around 88% of its 2.22 million barrels oil equivalent per day oil in Brazil during 2005. In Petrobras’ case, production outside of Brazil also can mean lower costs of access to capital, since overseas assets, and production for export, can be leveraged for cheaper loans.

Petrobras has plans to boost its liquids production outside Brazil to 383,000 b/d by 2011, and 742,000 b/d by 2015, from an average of 133,000 b/d this year. Most of the rise over the next half-decade will come from offshore West Africa and the US Gulf of Mexico.

Petrobras says its natural gas production outside Brazil should rise to 185,000 BOE in 2011, and 278,000 BOE in 2015, up from a projected average 100,000 BOE abroad this year. Petrobras sees total liquids and gas production rising to 3.5 million BOE in 2011, and 4.6 million barrels of oil equivalent (BOE) in 2015, up from a forecast 2.4 million BOE last year.

Recently Petrobras made a discovery of light oil in Santos basin subsalt (6,000 meters depth below the ocean floor) which might prove that Brazil has billions of barrels of light oil reserves subsalt, which comes in handy because most of Brazil’s oil production is of heavy crude.

Upon learning of the discovery Brazilian President Luiz Inácio Lula da Silva said that within five years Brazil will be an oil exporter (Brazil is oil self sufficient since last year) and will export some 500,00 barrels a day of oil. Lula also said he will consider applying for Brazil to become a member of OPEC.

Brazil’s subsalt exploration is focused in the Santos, Campos and Espírito Santo basins. It is expected to spread to the eastern margin Jequitinhonha and Camamu-Almada basins, say Petrobras officials. All these basins, even the Campos, still are unexplored for subsalt targets. But, the subsalt section congregates all the elements considered essential for the existence of oil and gas accumulations.

Although private sector geologists say that there may be another Campos basin subsalt, with more than 10 billion barrels (Bbbl) of light oil reserves, Petrobras was first to affirm that Campos basin subsalt section still has billions of barrels of light oil potential to be explored.

“Due to the urgent necessity of importing light oil to be blended at Petrobras’ old refineries with heavy crude (the bulk of Brazil’s oil output) and because of the huge tertiary/upper cretaceous oil discoveries that occurred during the ’70s, ’80s, and first half of the ’90s, Brazilian exploration remained predominantly concentrated at the Campos basin Tertiary and Upper Cretaceous reservoirs. Campos and other basins subsalt exploration was sporadic,” explains Petrobras
.
“Since 2004, however, subsalt exploration has become an important exploration focus, both in the Campos basin as in the adjacent Espírito Santo and Santos basins. Based upon their interpretation, Petrobras geologists and geophysicists expected to find porous-permeable reservoirs and good quality oil, as actually occurred,” add Petrobras officials.

Along the coastline from Santa Catarina state, south of Brazil to Paraíba and Pernambuco states, in northeastern region, there are sedimentary basins with a total sedimentary area of near 770,000 sq km (297,299 sq mi), with water depths up to 3,000 m (9,842 ft).

From south to north, the following gives the areas of each sedimentary basin: Santos, 350,000 sq km (13,514 sq mi); Campos, 115,000 sq km (44,402 sq mi); Espírito Santo/Mucuri, 120,000 sq km (46,332 sq mi); Cumuruxatiba, 39,000 sq km 15,058 sq mi); Jequitinhonha, 23,000 sq km (8,880 sq mi); Camamu-Almada, 23,000 sq km (8,880 sq mi); Jacuípe, 13,000 sq km (5,019 sq mi); Sergipe-Alagoas, 46,000 sq km (17,761 sq mi); and Pernambuco-Paraíba, 40,000 sq km (15,444 sq mi).

Peter Howard Wertheim is a veteran international journalist specializing in covering South America’s petroleum and power sectors. He is based in Rio de Janeiro, Brazil, and is fluent in English, Portuguese and Spanish. Comments welcome at peterhw@frionline.com.br or peterhw@netflash.com.br

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