Brazil’s Santos Basin: Does Hype Match Reality?
Even taking into consideration July’s fiveday workers’ strike that put a brief damper on production, this year has been fantastic for Petrobras. Average oil and gas output is on the upswing, and the Santos basin presalt discoveries have pushed the company’s value to new heights, while news of oil and gas finds has practically become a monthly occurrence. Simply put, Petrobras is the darling of the global oil and gas industry.
But behind the good news are prominent voices of concern, as some experts question the ability of Santos and Petrobras to meet aggressive deadlines. According to critics, the Santos presalt layer may have unexpected surprises and its development may not be as easy as some believe. In addition, the global crunch for upstream equipment could complicate Petrobras’s plan to start production by 2009. While no one has gone so far as to say Santos is a dud, it is becoming increasingly clear that the hard part is yet to come and celebrations could be premature.
In fact, some of Petrobras’s latest discoveries in the Santos raise more questions than answers, as reserve estimates have been tentative and at times nonexistent in recent months. Indeed, “caution is required” in Santos, according to a recent report from Wood Mackenzie: “The truth is that, at this early stage, no one – not even Petrobras – has a good handle on what lies ahead.”
The causes for concern are clear: geological modeling is “in its infancy” in the presalt, where wild expectations in the massive area are based on only eight or so wells see Table 1. Meanwhile reservoirs found to date are highly carbonate, making them hard to model, according to Wood Mackenzie. In sum, it will take years before Petrobras knows exactly what it has and how it can exploit the vast reserves.
Meanwhile Petrobras and its partners could have trouble securing the deepwater rigs they need to do more drilling. In the short run, Petrobras is under considerable pressure to strike oil in Santos blocks before its concessions expire see Table 2. “Given that only three rigs currently in Brazil are available to drill for ultradeep targets in deep and ultradeep waters, the use of these rigs needs to be planned carefully,” according to a bullish Credit Suisse report on Petrobras.
The Brazilian company also will need equipment in place to start longduration tests next year and a pilot production project one year later. In the longer run, Petrobras will need 5 to 10 production rigs in the area to meet its objective of producing 500,000 barrels per day at Santos’s Tupi area by 2020. Given today’s global outlook for rig supply, Petrobras may need to push back some deadlines.
Santos will continue to dominate headlines this year and next, and rightly so, given the 100 percent success rate in presalt plays. But operational delays, cost increases, and new reserve estimates will increasingly take center stage as reality slowly catches up with the hype.