OIL PRODUCTION IN BRAZIL: CHALLENGES AND
PROSPECTS
Prof. Edmar de Almeida
Energy Economics Group
Institute of Economics
Federal University of Rio de Janeiro
Roundtable hosted by
Center on Global Energy Policy
Columbia University
New York, May 18, 2015
PLAN OF THE PRESENTATION
• Brazil’s oil and gas sector
• Importance of Petrobras for national and global supply
• Petrobras’ financial crisis and corruption scandal
• Consequences for Brazilian Oil and Gas Industry
• The way out of the crisis
Brazil’s oil and gas sector
OVERVIEW OF THE OIL AND GAS SECTOR ON BRAZIL
• Proven reserves (Dec. 2014)
• Oil: 16.2 Bbarrels
• Gas: 471 bcm (16.2 tcf)
• Production (aver. Feb/2015)
• Oil and NGLs: 2.53 MMbpd
• Gas (gross): 87 MMcmd
• Balance Imports/Exports (Jan-
Mar. 2015)
• Oil: 399 MMbpd
• Gas: 47.5 MMcmd
Source: ANP
~100 companies with E&P concessions,
about 55 international and 45 Brazilian, but Petrobras dominates the O&G sector
RAPID CHANGE IN RESOURCE BASE
THE POTENTIAL GROWTH OF OIL PRODUCTION IN
BRAZIL IS ONE OF THE LARGEST IN THE WORLD
• Field development plans approved by ANP indicate a 4.3 MMb/d oil production in
2021
Projected Oil Production (Mbbl/D) based on contracts approved by ANP
Onerous Assignment Contracts
Concession Contracts
Concession contracts (Pre-salt)
Concession contracts onshore
Source: - ANP
6
FUTURE DEMAND AND PRODUCTION FOR BRAZIL ON
THE NEW POLICIES SCENARIO
Source: IEA
EXPECTED OIL PRODUCTION GROWTH IN BRAZIL
HAS A GLOBAL IMPACT
• Brazil potential increase in oil production represents 51% of the
expected demand increase until 2035
Source: IEA
ROLE OF BRAZIL IN FUTURE GLOBAL SUPPLY
• Brazil today represents 2,7% of world production and can
increase to 6% in 2035
• Oil production growth will depend on Petrobras investments` in
the Presalt
Major contributors to global oil supply growth in the New Policies Scenario, 2012-2035
Source: AIE
RESOURCE BOUNTY NURTURED ENERGY
NATIONALISM
• New oil laws of 2010
• Petrobras as a sole operator in the Presalt
• Exclusive rights for Petrobras:
• Onerous Assignment contracts (5 billion barrels +)
• Production Sharing contracts (~10 billion barrels in Presalt)
• Petrobras resource portfolio is very large as compared to its investment
capacity – need to divest?
• Five years without E&P bidding rounds have deeply
affected the industry
• Strong emphasis on local content
10
Importance of Petrobras for
national and global supply
DIVERSIFICATION OF UPSTREAM INVESTMENT
• Today there are about 100 companies, aside from Petrobras,
active in E&P in Brazil
• About 55 international companies (majors and independents)
• Responsible for most of non-Petrobras investment in Brazil
• About 45 Brazilian companies
• Mostly newly-created companies
• Diversity of size and business models
• Important for onshore exploration
• However, Petrobras is still responsible for about 70% of all
investments in the Brazilian upstream
12
TOTAL INVESTMENT IN BRAZIL E&P (1998-2013)
Petrobras + partners
Source: Statoil
Petrobras financial crisis and
corruption scandal
TO ACHIEVE EXPECTED PRODUCTION, PETROBRAS
MUST KEEP ITS INVEST AT HIGH LEVEL
• The investment increased by more than 4 times on 10-year time
• Reduction on 2014
Source: Petrobras.
THE COMPANY HAS LOST REVENUES BY SELLING PRODUCTS
BELOW THE INTERNATIONAL MARKET PRICE
Average realization prices in Brazil vs. the US Gulf prices
Source: PETROBRAS
16
ESTIMATED ACCUMULATED LOSS OF REVENUE BY
PETROBRAS DUE TO PRICE CONTROLS
Estimated accumulated revenue losses by Petrobras for selling
gasoline, diesel and LPG below the international benchmark prices
Source: Own Elaboration
17
IN THE LAST FOUR YEARS PETROBRAS HAD TO
RELY ON CREDIT
Debt Index for Petrobras
(Net debt / EBITDA)
•
Even without this scandal scenario, Petrobras crisis would come anyway: it's
overinvestment and consequent high debt were a large problem itself
Source: Petrobras.
PETROBRAS’ DEBT IS NOW A CONCERN
Evolution of Petrobras’ Debt
• About 45% of the
debt must be
renewed by the
end of 2018
• Only 20% of the
debt is based in
domestic currency
19
Source: Petrobras
HIGHLIGHTS OF PETROBRAS 2014 RESULTS
• Sales Revenue growth: 11%
• Growth in total oil and natural gas production: 5% (2,669
thousand boe/day)
• Net loss: (-) R$ 26.1 bi (US$ 7.5 bi)
• This negative result has been fuelled by different factors:
• Impairment (Refining, E&P and Petrochemical) = R$ 44.6 bi (US$
16,8)
• Write-off of overpayment incorrectly capitalized (Car Wash
Operation) = R$ 6.2 bi (US$ 2.5)
• Cancellation of projects
• Provision for losses in the electric sector
2014 RESULTS: IMPAIRMENT TESTS
• Refining: postponement
of projects/assets
• E&P: decline in oil
prices
• Petrochemical:
Reduction in demand
and margins
Source: Petrobras.
2014 RESULTS: WRITE-OFF OF OVERPAYMENT
INCORRECTLY CAPITALIZED
• Amount of 3% over
contracts with 27
companies members of
the cartel between 2004
and 2012
• For companies outside
the cartel, specific
values mentioned in the
depositions
Source: Petrobras.
IMPLICATIONS OF "NON-COMPLIANCE“ WITH
CORRUPTION LAWS
Legal or regulatory sanctions and fines by regulatory
agencies in the US
Losses with lawsuits
Deterioration of companies reputation with the public
opinion and peers
Increasing difficulties for doing business
Moody’s announced the downgrade of all of
Petrobras's ratings, among which the unsecured
debt
Source: ABBI e FEBRABAN, Função de Compliance – 2003.
IMPORTANT IMPACT IS ON TRUST
• Petrobras had a 220 billions dollars investment plan for the next 5
years
• The company relationship with its suppliers deteriorated
• Nearly two dozen companies banned from doing business with Petrobras
• Some of these companies (Engevix, OAS, UTC and Mendes Júnior) are
responsible for the construction of the FPSO and drilling rigs for the pre-salt
projects
• The companies are companies are facing credit access difficulties, which will
delay the construction projects
• Lack of trust for doing business results in higher costs
Consequences for Brazilian Oil
and Gas Industry
BRAZILIAN OIL AND GAS SECTOR CRISIS
Cash flow
problem
High
Debt
Oil prices
Reduction
Corruption
Scandal
High uncertainty
for future
domestic
production
Low credit
for Petrobras
and
Suppliers
LACK OF FINANCING IS AFFECTING THE ABILITY OF
BRAZILIAN INDEPENDENTS TO INVEST
Evolution of the Number of Wells Drilled in Brazil
Source: ANP
27
BRAZIL: SHARP REDUCTION IN EXPLORATORY
ACTIVITY IN THE LAST 3 YEARS
Evolution of the number of Drilling Rigs in Operation in Brazil
28
Source: Backer
THE SLOWDOWN IN BRAZIL WAS THE LARGEST IN THE WORLD
IN THE H1-2014; ARGENTINA IS GAINING GROUND
29
Petrobras business plan was to double production until
2020, reaching 4.2 kbpd
Petrobras planned to construct:
• 22 new FPSOs on 2015-2020 period
• 28 rigs from Sete Brasil
Source: Petrobras
Plataforms by year of delivery
The 2019 and 2020’s FPSOs haven’t been tendered
2015
2016
2017
2018
Iracema Norte
Lula Alto
NE de Tupi
(Cid Itaguaí)
(Cid. Maricá)
Lula Extremo Sul e CO
Sul de Lula (P-68)
Lula Central
Lula Oeste
(Cid. Saquarema)
(P-69)
Lula Sul
Búzios III
Iara NW
(P-66)
(P-76)
(P-71)
Búzios I
Iara Horst
(P-74)
(P-70)
Lapa
(Cid. Caraguatatuba)
Tartaruga Verde e
Mestiça
Lula Norte
Búzios IV
(P-67)
(P-77)
(P-72)
Es Águas Profundas
Revitalização Marlim I
SE Águas Profundas I
Sul Pq. Baleias
Búzios II
Maromba I
(P-75)
Carcará
Entorno de Iara
(P-73)
Source: Petrobras
POSSIBLE DELAYS FOR THE FPSOS
2015
2016
2017
2018
Iracema Norte
Lula Alto
NE de Tupi
(Cid Itaguaí)
(Cid. Maricá)
Lula Extremo Sul e CO
Sul de Lula (P-68)
Lula Central
Lula Oeste
(Cid. Saquarema)
(P-69)
Lula Sul
Búzios III
Iara NW
(P-66)
(P-76)
(P-71)
Búzios I
Iara Horst
(P-74)
(P-70)
Lapa
(Cid. Caraguatatuba)
Tartaruga Verde e
Mestiça
Lula Norte
Búzios IV
(P-67)
(P-77)
Possible Delay
Not yet tendered
(P-72)
Es Águas Profundas
Revitalização Marlim I
SE Águas Profundas I
Sul Pq. Baleias
Búzios II
Maromba I
(P-75)
Carcará
Entorno de Iara
(P-73)
The way out of the crisis
HOW PETROBRAS IS TRYING TO SOLVE THE
PROBLEMS
• The company is trying to improve the credibility by changing the
CEO and executives
• As a state-run company, the president choose the executives of Petrobras
• On February, the CEO and five executives resigned
• Announcement of a two-years (2015/2016) disinvestment plan
on March, 2 2015
• Divestitures total US$ 13.7 billion, and include Exploration & Production
assets in Brazil and abroad (30%), as well as assets in the Downstream
(30%) and Gas & Energy (40%) segments
• The company wants to focus on priority investments, mainly oil and gas
production in Brazil in areas of high productivity and return
PETROBRAS PLANNING ASSUMPTIONS FOR 2016
• Oil and Natural Gas Production (Brazil and abroad): 2,886
kboed (+/- 2%)
• Divestments: US$ 10 billion
• Investments:
• Approximately US$ 25 billion (82% in E&P)
• 37% below 2016 CAPEX (US$ 39.5 billion), in the 2014-2018 Business
Plan
• New FPSOs:
• Cidade de Itaguaí (4Q15)
• Cidade de Maricá (1Q16)
• Cidade de Saquarema (2Q16)
• Cidade de Caraguatatuba (3Q16)
• Extended Well Test - Libra (4Q16)
THE NEW BIDDING ROUND IS A GOOD SIGN
• The government announced on May 4th a new bidding round
this year, on October
• The 13th Bidding Round will offer 269 exploratory blocks, no
offer on the pre-salt area
• The offered areas are distributed at 10 basins: Amazonas,
Parnaíba, Potiguar (onshore), Recôncavo, Sergipe-Alagoas
(offshore), Jacuípe, Camamu Almada, Campos, Espírito Santo
(offshore) and Pelotas.
• The bidding round for the pre-salt area will probably be
postponed to 2017
AREAS TO BE OFFERED IN THE13TH BIDDING
ROUND
Thank you
www.gee.ie.ufrj.br
[email protected]
Grupo de Economia da Energia