Brazil leads the parade

Every 1st November, throughout Latin America, revellers celebrate Dia de los Muertos, or Day of the Dead. The festival is marked by feasts and processions dedicated to the departed. In some ways, Dia de los Muertos serves as a metaphor for Latin America’s oil and gas industry; for many years, pundits have been predicting its imminent demise due to nationalisations, lack of investment and hostile investment climes. Yet it always rejuvenates itself and rises to the fore; the region currently produces over 10 million bpd and 204 billion m³ of gas, and is expected to reach 12.4 million bpd and 237 billion m³ by 2015.

Brazil

Brazil is leading the parade with a combination of technology, skill and investment. Thanks to advances in seismic, drilling and offshore production, Petrobras and its international partners are in the process of delineating and producing what may amount to as much as 100 billion bbls of recoverable crude from the pre-salt formations in the Campos and Santos Basins. Some recent discoveries include;

• Petrobras encountered several hundred million bbls of 27° gravity oil in carbonate reservoirs in the southern part of Sapinhoa field.
• Sinopec, Repsol and Statoil estimate that their discoveries in the Seat, Gavea and Pao de Acucar prospects now contain 700 million bbls of recoverable oil and 3 trillion ft³ of gas.
• Petrobras extended the Carcara prospect, penetrating through 171 m of 32° gravity oil. The company has yet to determine the lower limit of the oil column.

The extreme operating conditions (most of the new discoveries are over 300 km from shore, and in water depths approaching 10 000 ft) have slowed bringing the fields onstream. In late 2010, Petrobras and partners formally brought its 5 - 8 billion bbls Lula field online with a 100 000 bpd floating, production, storage and offloading (FPSO) unit. They expect to commission the second, 120 000 bpd FPSO in 2013, boosting production to 220 000 bpd. A third, 120 000 bpd FPSO will be deployed in nearby Guara field, also in 2013.

Much more is set to come. In June, Petrobras committed to spending US$ 236.5 billion (an average of US$ 47.3 billion/yr), on exploration and production over the next five years. Much of that will go toward a new fleet of rigs designed to explore the pre-salt play, but the company is also investing heavily in a dozen FPSOs. Crude oil production is predicted to rise from 2.2 million bpd to 3.65 million bpd in 2015 as new deepwater fields come onstream and subsalt discoveries increase their contribution. The country’s total production, now at 2.7 million boe/d, is expected to rise to over 5.7 million boe/d by 2020.

Several factors may impede rapid growth, however. In 2009, Brazilian President Luiz Inacio Lula da Silva (Lula) froze further lease sales in the pre-salt and announced an overhaul of resource legislation. Substantial progress has been made toward a new system, including putting Petrobras in charge of developing the massive pre-salt deposits, but President Dilma Rousseff still has to deal with royalty changes and a fund distribution system to compensate states with no oil production. In addition, preference for Brazilian-sourced equipment has the potential to cause delays and contribute to project cost inflation. Plans for a nuclear-powered submarine fleet capable of protecting the underwater fields would place further strains on Brazil’s vessel construction sector. Several major exploration companies have announced plans to downgrade their presence in Brazil and seek similar geological pre-salt plays off the West Coast of Africa. But the government remains firmly committed to a fiscal and regulatory climate that allows both national and international firms to participate in the bonanza.

Colombia

Colombia has made major strides to create a healthy investment climate and open up its immense potential to international explorers. “You take knowledge and resources and put them together to find opportunities, and you end up with success,” says Octavio Urdaneta, Manager for Bogotá-based Petro Rubiales. His company has earned bragging rights; since it was founded less than a decade ago by seasoned Venezuelan expatriates, Pacific Rubiales has climbed from 14 000 boe/d to 235 000 boe/d in mid-2012. “We have set a goal of 500 000 boe/d by 2016,” says Urdaneta.

Colombia’s success can be directly attributed to a decade long effort to establish peace and regulatory stability. In 2002, President Uribe began a campaign to regain control of large swathes of land seized by insurrection groups such as FARC, and to eliminate the widespread destruction of infrastructure and kidnapping of personnel. In addition, the country opened up the oil and gas sector and established generous royalties to encourage outside investment. International expenditures now exceed several billion dollars annually. PetroMagdalena Energy recently discovered 25 ft of net pay in the Upper Guadelupe sands on the Cubiro block in the Llanos basin. The 1.5 km structure produced 530 bpd in tests. Gran Tierra Energy Inc., Calgary, tested 2525 bpd at the Ramiriqui-1 discovery well in the Llanos basin. The 19 519 ft well encountered more than 20 ft of 26 API gravity oil. Petroamerica Oil Corp., Calgary, encountered 40 ft of net oil pay in the Mirador formation in the Llanos basin. The discovery well flowed 860 bpd of 37 API gravity oil.

Violence against the sector has not been completely suppressed, however. In 2011, a series of kidnappings marred the beginning of Colombia’s new administration, headed by President Juan Manuel Santos. In late 2011, union violence flared at the Rubiales field, with workers vandalising property. In early 2012, Production from PetroMagdalena’s Cubiro block was interrupted by road blockades in the region, and about 3700 bpd had to be shut in. The government is working with industry to address community issues, and vows to remain vigilant against resurgent terrorism.

Mexico

Mexico has suffered a prolonged slide in production due to the decline of the giant Cantarell field. As recently as 2004, the country’s production stood at 3.8 million bpd, but now hovers in the 2.5 million bpd range. Mexico has over 10 billion bbls of recoverable reserves, however, and several recent developments indicate significant potential for reversing the production decline. Earlier this year, it tested 5600 bpd and 255 000 m³ of gas from the Kinbe-1 well in shallow waters in the Gulf of Mexico; Pemex now posts 1.5 billion bbls of proven, probable and possible oil reserves for the Tsimin, Xux and Kab fields. Pemex also encountered 3700 bpd and 227 000 m³ of gas from the Pareto-1 well in Tobasco state; the company has already identified similar geological potential in several nearby locations.

Pemex has also made significant strides in other major fields through improved technologies and better operational practices. Production in the highly complex Ku-Maloob-Zaap (KMZ) field, which stood at 513 000 bpd in 2007, has since risen to over 840 000 bpd, and the company hopes to reach 1 million bpd by 2015. The Chicontepec field, located in the state of Veracruz, has seen a 39% increase in the last year, from 44 000 bpd in 2011, to 58 000 bpd in 2012.

The offshore Gulf of Mexico offers the greatest potential benefits. US federal authorities reckon that up to 15 billion bbls of undiscovered, recoverable oil lay in the deepwater in their portion of the Gulf, and the geological conditions extend into Mexican waters. So far, Mexico has had little success on previous deepwater tests, mostly yielding gas reserves, but joint ventures with seasoned Gulf veterans such as BP and Chevron could lead to enough major discoveries over the next decade to offset Cantarell’s demise.

Venezuela

In spite of President Hugo Chavez’s efforts to derail his country’s oil and gas sector, Venezuela is once again heading back toward regional prominence with resurging production.

The country’s plunge began in 2007, when the Chavez regime nationalised major projects in the Orinoco heavy oil belt region by awarding 60% ownership to state oil company PdVSA. Although several companies, including BP, Chevron and Total, accepted compensation offers, ExxonMobil and ConocoPhillips filed multi-billion dollar claims in the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID). The subsequent purging of professionals opposed to the government from PdVSA resulted in a plunge in production from 3.5 million bpd to an estimated 2.4 million bpd.

But the sheer magnitude of Venezuela’s reserves (approximately 1.2 trillion bbls of oil in place), means that the country cannot be ignored. National Oil Companies (NOCs) and International Oil Companies (IOCs) are piling in with large investments in order to gain a foothold in the immense deposits.

Although windfall profits tax and other unilateral moves toward confiscation will continue to make Venezuela a high risk investment venue, analysts predict that output will gradually rise to 3.1 million bpd by 2015, and 4 million bpd by 2020.

Argentina

Argentina has abandoned its traditional Tango in favour of simply shooting itself in the foot. In April, a decade after committing the biggest sovereign debt default in history, the federal government announced it was seizing 51% of oil producer YPF SA from Spain’s Repsol (which had purchased the shares after YPF was privatised in the 1990s). The government blamed YPF (which produces about one-third of the country’s oil and gas) for Argentina’s downward spiral, and said that it should invest more in E&P. Repsol denied the charges, and intends to take the matter to international arbitration.

Argentina’s move may jeopardise the development of one of the largest sources of unconventional resources in the world. In early 2011, the US Energy Information Administration (EIA) published a report that the country could contain up to 774 trillion ft³ of recoverable shale gas, mostly in the Neuquen basin in western-central Argentina, and Golfo San Jorge, in the southeast. Several international oil and gas companies have established comprehensive land packages in the region and are beginning to gain a stronger understanding of its potential. Apache Corp and partner Americas Petrogas initiated a long term test of the Vaca Muerta shale in the Huacalera block in the western Newuqen basin and encountered significant flowrates from a 360 ft perforated section. Industry analysts reckon that an investment of US$ 25 billion annually would double Argentina’s current production of 551 000 bpd of oil and 3.3 billion ft³/d of gas by the end of the decade. With the seizure of YPF, however, any substantial future investment would be highly risky.

Conclusion

While future production growth for Latin America looks bright, consumption is also on the rise. Oil demand was 8.43 million bpd in 2010 and is forecast to rise to 9.5 million bpd by 2015. Gas consumption was 16 billion ft³/d in 2010, and is expected to exceed 20 billion ft³/d by 2015, largely due to population and economic expansion. While countries such as Brazil and Venezuela will have little difficulty meeting demand growth, Mexico may become a net importer of crude within the decade, and Argentina may suffer far more serious gas and power disruptions.

Written by Gordon Cope.

This is an abridged version of the full article from Gordon Cope, which was published in the September 2012 issue of World Pipelines, available for subscribers to download now.

Read the article online at: https://www.oilfieldtechnology.com/exploration/31082012/oil_and_gas_exploration_predictions_for_latin_america/