By Juliana Estigarríbia
Brazil, Namibia, and Guyana lead the discoveries of new oil reserves worldwide, with state-owned companies spearheading this movement alongside private giants.
In the case of Petrobras, the exploration of new wells in 2023 should be crucial to the company’s value generation, according to analysts heard by Bloomberg Línea, given the need to develop them to ensure the perpetuity of production volumes.
Total (TTE), Petrobras, and QatarEnergy led discoveries of oil and gas resources in 2022, according to consultancy Wood Mackenzie survey.
“Oil exploration results had been disappointing through 2021, but we had promising discoveries last year,” said the consultancy’s global exploration and research director, Julie Wilson.
The discoveries occurred when the new government of president-elect Luiz Inácio Lula da Silva discussed changes in the fuel price policy of the state-owned company, putting in doubt the continuity of the significant profitability that the company reached in recent years necessary to support new investments in the projects.
In an interview with GloboNews, the Minister of Mines and Energy, Alexandre Silveira, said yesterday (5) that the government will change Petrobras’ fuel price policy and that “the state-owned company needs to have its cost based in real”.
The minister said that the measure’s implementation would start after the next meeting of the company’s board at the end of this month.
After the minister’s statement, Petrobras said in a statement to the market that it had not received any proposal from the Ministry of Mines and Energy regarding the change in the pricing policy.
In 2022, the consultancy highlighted that the biggest value creation came from world-class deepwater discoveries in Namibia, Guyana, and Brazil, where the latest wave of pre-salt exploration finally succeeded.
Wilson clarified that many pre-salt wells discovered in recent years had limited success, partly due to the high concentration of CO2, which can cause, among other problems, damage to equipment or even the unfeasibility of projects.
Wood Mackenzie pointed out that Petrobras made two important discoveries recently: the oil accumulations in the Aram and Alto de Cabo Frio Central blocks, both in the Santos Basin.
According to the consultancy’s estimates, the volumes of Aram are around 2.02 billion barrels of oil equivalent (boe).
In Alto de Cabo Frio Central, there are 619 million boe.
Although promising, the two blocks still depend on an appraisal to be declared commercial.
“This should be a critical year for Petrobras.”
“By drilling these wells, the company should have more information about whether the blocks in question are economically viable.”
“That’s why exploration investments will be very important in 2023″, Wilson said.
She added that, based on Petrobras’ plans, it is possible to assume that there will be a sufficient volume of oil for production in the future, provided new fields are developed.
INVESTMENT FORECAST
Petrobras’ strategic plan for 2023 to 2027 foresees investments of around US$78 billion.
Of this total, 83% (or US$64 billion) will be allocated to the exploration and production area.
The senior vice-president and head of Latin America at Rystad Energy consultancy, Schreiner Parker, explained that, for an oil company to leave the exploration phase for production, the path is long.
“Exploration [of oil] is a high-risk activity.”
“Typically, a company will drill five wells, and only one will pay off.”
“Regarding deepwater drilling, the volume of investments is even higher.”
Wood Mackenzie’s director states that developing onshore fields is easier and faster.
In the case of deepwater (offshore) and ultra-deepwater (pre-salt) projects, the costs and risks are considerably higher.
“The challenge in the pre-salt is much greater,” Wilson ponders.
According to Petrobras’ current business plan, exploration in the so-called Equatorial Margin – a new exploratory frontier located in a strip extending from Amapá to Rio Grande do Norte – will receive investments of approximately US$3 billion over the next five years.
Reserves in the region are estimated to be around 30 billion barrels per day (bpd).
In Parker’s view, however, exploration in the Equatorial Margin will be a significant challenge. He recalls that other oil companies have tried to explore the region but faced environmental obstacles.
“This bureaucratic process may cause problems for Petrobras”, he said.
ENERGY TRANSITION
According to Wood Mackenzie, the biggest oil companies in the world, known as sector majors, have been investing, on average, from US$500 million to US$1 billion per year in exploration, focusing on assets whose emissions levels are lower.
This is the case of the pre-salt, which, due to its high productivity, is more efficient – and consequently less aggressive.
The strategy is part of the oil companies’ decarbonization plan in the energy transition scenario.
“This is a major turning point for these companies reevaluating the exploration phase.”
“The new assets need to be better than those already in the portfolio, with lower cost and lower carbon intensity,” Wilson noted.
In early March, Petrobras’ new CEO Jean Paul Prates said that “oil production is not going to disappear” and that they must coexist with renewable energy “for a few decades.”
“Petrobras will keep its focus on upstream [exploration and production] and pre-salt because it is our core business, and it is important to finance the energy transition.”
“Nobody transforms overnight,” the executive told investors.
In parallel, the state-owned company is evaluating renewable energy projects, especially offshore wind power generation.
Early last month, the company announced the signing of a letter of intent with Norway’s Equinor (EQNR) for studies involving seven offshore wind generation projects off the Brazilian coast, with the potential to generate up to 14.5 gigawatts (GW).
The transition speech contrasts with the movement of the Brazilian state-owned company to reassess the program of asset sales that was underway, which includes businesses in mature fields and refineries.
“There is a big internal dispute among oil companies about the destination of resources.”
“Companies are revisiting their budgets, and it is increasingly difficult to justify investments in hydrocarbons,” Parker said.
PEAK CONSUMPTION
The Rystad consultancy estimates that peak global demand for oil and gas should occur between 2025 and 2030 and only begin to fall rapidly over the next decade.
At the same time, production should start to fall back by the mid-2030s if new fields are not developed.
“We will have a race among nations for production from the remaining oil reserves.”
“Billions of barrels will be left ‘in the ground’ in 2050, 2060, and 2070.”
“The speed of project development matters in this race,” said consulting firm founder Jarand Rystad.
Parker said that about 15 years ago, Brazil emerged as a major global oil power with the discoveries in the pre-salt layer.
“The country was a great promise, but now the story is changing a bit,” he said.
In this sense, he pointed out that investments in exploration are still highly necessary.
The consultancy estimated that, by 2030, the global market would demand an additional supply of 63 million bpd.
Parker warns that the lack of investment in new exploratory wells can cause major problems, with a consequent price increase.
“Before the war [in Ukraine], the pillar of the energy sector was based on sustainability, but now it’s also on costs and energy security.”
“We will still need to invest a lot of money in oil,” he concluded.
With information from Bloomberg