What is Equatorial Margin? See 10 questions and answers about Brazilian Petrobras’ new bet

By Gabriela Ruddy

The year 2023 could mark the return of Petrobras to a region that has not received new oil and gas exploration activities in the country for years, the Equatorial Margin. The company is betting on studies in this region to ensure a new production front in the coming decades, in line with the strategy it has adopted to focus on lower-cost oil production and less emissions in the context of the transition to a low-carbon economy.

Initially scheduled to start by the end of this month, a drilling by Petrobras in deep waters in the State of Amapá still depends on the issuance of an environmental license. Proximity to the Amazon Forest and possible impacts on indigenous, riverside and quilombola peoples, however, make the topic sensitive.

Next, Valor explains the importance of the Equatorial Margin and the controversies related to the region.

1- WHAT IS THE EQUATORIAL MARGIN?

The region encompasses the offshore oil and gas exploration and production basins close to the Equator, in the North and Northeast. The Equatorial Margin extends from the coast of the State of Rio Grande do Norte to Oiapoque in the State of Amapá (AP), in the extreme north of the country, and includes the Foz do Amazonas, Pará-Maranhão, Barreirinhas, Ceará and Potiguar basins.

2- WHY IS IT IMPORTANT?

Oil and gas are non-renewable resources, therefore, available reserves are reduced as extraction takes place. Today, 75% of Brazilian oil production comes from the Santos Basin (RJ/SP/PR/SC), where the main pre-salt fields are located, but analysts point out that the potential for new major discoveries in this basin has fallen.

On the other hand, in recent years, there have been major discoveries in Guyana and Suriname, close to the north of Brazil, as well as on the West African coast, which have structures similar to that region of the country.

For this reason, the reserves on the Equatorial Margin are Petrobras’ main bet to maintain the level of oil and gas production from the 2030s onwards, when there should be a natural decline in production from the fields in the Santos Basin (RJ/SP/ PR/SC).

According to Petrobras’ executive director of exploration and production, Fernando Borges, the natural decline in reserves is around 10% each year. During a conference call with analysts this month, he said that the company has to add 300,000 barrels per day to reserves every year to keep production at the current range.

3 – WHAT ARE THE SENSITIVITIES OF THE REGION?

The Equatorial Margin is considered a new frontier, that is, there is still not much geological knowledge about the region, as few exploratory activities have taken place in these basins so far, mainly in deep waters, where Petrobras intends to operate.

The proximity of the basins to the Amazon Forest is one of the points that concerns environmentalists. There are caveats regarding the impacts on the region’s biodiversity, as well as the effects on indigenous, quilombola and riverside communities. The increase in waste, air traffic and possible impacts on fishing activities are some of the concerns.

Another issue is the flow of maritime currents in the region, which contribute to any spills quickly reaching neighboring countries, especially the French Guyana.

There is also, according to environmentalists, the existence of a large system of coral reefs on the Amazon coast, which can be affected by the activities.

4 – WHAT IS THE POSITION OF THE ENVIRONMENTALISTS?

The advance of exploration activities on the Equatorial Margin has been the target of criticism from environmentalists. According to the NGO WWF-Brasil, representing the Swiss NGO World Wide Fund for Nature, the activities put the presence of sensitive and little-known marine habitats at risk. “It is alarming the fact that the Amazonian reefs are not protected by any type of conservation unit, which represent one of the most basic tools for biodiversity conservation,” says the NGO in a note.

Daniela Jerez, a public policy analyst at WWF-Brasil, also believes that the country should allocate resources to clean and renewable energy sources, in the context of the transition to a low-carbon economy. “We understand that, in the context of climate change, opening new exploratory frontiers for oil and gas, which at best would only become productive after 2030, is not the best path for the country,” she says.

5- WHAT IS THE POSITION OF THE INDUSTRY?

Experts point out that the advancement of activities on the Margin can increase direct and indirect revenues, such as royalties and the service sector, in States like Maranhão, Pará and Amapá. In addition, they point out that oil and gas production in that region opens up new prospects for development and industrialization in the North and Northeast.

The Brazilian Institute of Oil and Gas (IBP) recalls that several wells have already been drilled in the region without accidents. In addition, he points out, the structures similar to corals present in the region are found at a depth of 120 meters, while the planned drilling activities must take place at a depth of more than two thousand meters, far from the formations.

There are still controversies regarding reefs. Professor of marine geology at the Fluminense Federal University (UFF) Alberto Figueiredo says that the structures found in the region are calcareous algae on granites, not coral reefs, and that, for the most part, they do not have life. According to him, the structures are even similar to those found in the basins where Petrobras already produces.

6 – WHAT HAPPENED THERE UNTIL NOW?

The first drillings on the Equatorial Margin took place in the 1970s, without major discoveries that would make commercial production viable. So far, most of the activities have taken place in shallow waters, but the expectation is for great potential in deeper regions.

Most of the exploratory blocks under concession in the region are the result of the 11th Round of the National Petroleum Agency (ANP), in 2013. At the time, the president of the ANP was Magda Chambriard, who today participates in the transition team for the Lula da Silva government, which takes over in January.

Many of the contracts signed in that auction, however, are suspended due to difficulties in obtaining environmental licenses to proceed with exploration.

In 2017, British BP even started logistical planning for activities in Pará, but the process did not go ahead. The following year, the French company TotalEnergies had a request to drill in Foz denied by Ibama. The environmental agency argued that there was a lack of adequate logistical solutions for possible emergency scenarios. The companies opted to sell the slices of blocks that operated on the Margin to Petrobras.

Another company pulled out of the region this year. In early 2022, the German oil company Wintershall DEA decided to close all its operations in Brazil and close the office in Rio de Janeiro. The company had blocks in the Potiguar and Ceará basins, but left the country to focus on regions and projects that are in line with the climate goals it defined in the context of the energy transition.

In recent decades, seismic data survey campaigns have shown the potential of reserves on the Margin. This year, the seismic data collection company announced a project to collect 60,000 kilometers of high-resolution 2D data on the Equatorial Margin. The aim is to use new technologies to better define the structures of the region.

7 – WHO WILL INVEST IN MARGIN?

At first, Petrobras. The company is going to start exploring the region with a drilling in deep waters off the coast of Amapá, 160 kilometers from the coast and at a depth of 2800 meters.

Petrobras’ director of exploration and production indicated in a recent conference call with analysts that a second well on the Margem should take place in the Potiguar Basin.

Petrobras’ business plan for the period from 2023 to 2027 provides for the drilling of 16 wells in the region. The company will allocate 49% of exploratory investments in the period to this region, which add up to a total of US$ 6 billion.

Directors of the state-owned company, however, have already stated that the company may seek partners to develop eventual discoveries in that region in the future.

8 – WHAT IS MISSING TO START THE ACTIVITIES?

Petrobras depends on the issuance of an environmental license for the start of the first drilling. According to the state company, at the moment the progress of the licensing process depends on carrying out a pre-operational assessment (APO), which will be carried out on a date to be defined “soon” with Ibama (Brazilian Institute of Environment and Natural Resources). “Petrobras is making every effort and mobilizing the necessary resources to carry out the APO,” the company said in a note.

Petrobras’ exploration and production director said in November that the company was starting to move the drilling rig to Amapá.

9 – HOW IS PETROBRAS PREPARING FOR THIS?

Petrobras conducts a series of studies to identify possible impacts resulting from operations. The company wants to apply technologies for the preservation and maintenance of the physical and biological characteristics of the environment during activities. In parallel, the state company plans to develop socioeconomic projects in the region, with a focus on environmental care.

Innovation is one of the bets to reduce the costs of operating in the region, with the use of technologies such as artificial intelligence and “big data”, the massive use of data.

10 – WHAT IS THE POSITION OF OTHER COMPANIES BESIDES PETROBRAS?

The companies await the results of the first Petrobras campaigns to define the strategies.

In November, the president of Enauta, Décio Oddone, said that the company has no plans to drill in the exploratory blocks it operates in Pará-Maranhão. “The drilling that Petrobras indicates that it intends to do on the Equatorial Margin will be an indication for us from the point of view of environmental licensing in the region and of attractiveness”, said the executive, who was director general of the ANP from 2016 to 2020.

The main operator of the discoveries in Guyana, close to the Brazilian margin, is ExxonMobil. Another major oil company that could look to the region is Shell. In an interview with Valor in September, the company’s global director of exploration and production, Zoe Yujnovich, said that a possible decision on the subject will consider the economic fundamentals and the carbon resilience of the projects.

With information from Valor