Brazilian Oil and Natural Gas Industry

Brazilian Oil and Natural Gas Industry
Brazil’s Sedimentary Basins
Import and Export
Market Opportunity in Brazil

 

Brazilian Oil and Natural Gas Industry

Brazilian Background

According to the BP Statistical Review of World Energy 2009, Brazil’s oil and natural gas reserves are among the fastest growing in the world, increasing at a CAGR of 7.4% from 1.7 billion boe of proven reserves in 1980 to 12.6 billion boe at the end of 2008. In addition, daily oil and natural gas production in Brazil grew, during the same period, at a CAGR of 8.4%, from 0.2 million boepd in 1980 to 1.9 million boepd at the end of 2008. Of the proven domestic oil and natural gas reserves, approximately 90% are located offshore, and 10% are located onshore. Additionally, 88% of the Brazilian proven reserves are concentrated in the Southeast offshore Campos, Santos and Espírito Santo Basins.

By November 2007, public announcements regarding discoveries of five billion to eight billion boe at the Tupi field in the Santos Basin led many industry observers to increase their estimates of Brazil’s oil and natural gas reserves. In light of the vast and still untapped estimated potential oil and gas resources of the entire pre-salt area, Brazil potentially has up to 70-100 billion boe in oil and natural gas reserves, according to industry experts, which if confirmed, would place Brazilian reserves among the five largest in the world (ahead of Venezuela and Nigeria).

In billion of barrels

 

According to the ANP, Brazil has approximately 7.5 million km² (1.9 billion acres) of sedimentary areas mostly spread across 29 main sedimentary basins, of which roughly 2.5 million km² are located offshore. Concessions for exploration and production have been granted for less than 4% of these areas.

Historically, Brazil’s oil and natural gas industry was controlled by Petrobras, the Brazilian state-owned oil and natural gas company that was founded in 1953. In 1995, the Brazilian Federal Constitution was amended to allow privately or publicly-owned companies to be engaged in the exploration and production of oil and natural gas, subject to conditions set forth in specific legislation governing the sector. In 1997, the Petroleum Law, enacted pursuant to the constitutional amendment, created the ANP to promote a transparent regulatory framework and bidding rounds for new concession areas and to regulate and oversee the Brazilian oil and natural gas sector.

The opening of the Brazilian oil and natural gas industry attracted the attention of private companies. As of December 30, 2007, 60 companies were active in Brazil in the exploration and production of oil and natural gas, 32 from Brazil and the remainder 28 from 13 other countries (United States, United Kingdom, Canada, Norway, Italy, Japan, Denmark, Argentina, Portugal, Spain, Holland, South Korea, and France).

So far, the ANP has held ten bidding rounds. Round zero was the first round held by the ANP to define Petrobras’ participation in its existing blocks after the end of its monopoly. The graph below indicates the number of exploration blocks auctioned at each round:

 

Reserves, Production and Other Operating Data

Oil and Natural Gas Reserves and Production

According to BP Statistical Review of World Energy 2009, Brazil had 12.6 billion boe of proven oil and natural gas reserves at the end of 2008, the second-largest in South America after Venezuela. Brazil’s recent discoveries have positioned the country as one of the most promising areas in terms of potential recoverable volume. The Campos and Santos Basins, located on the country’s southeast coast, contain the vast majority of Brazil’s oil and natural gas proven reserves.

According to Petrobras, Brazil’s oil and natural gas production has increased substantially in recent years, with Campos Basin producing approximately 77% of the country’s total production. This growth is expected to continue through the next decade as production at key fields is ramped up, and as more recent discoveries in the Espírito Santo and Santos Basins are developed.

 

Brazil’s Sedimentary Basins

According to the ANP, Brazil’s sedimentary areas are distributed over more than 40 sedimentary basins, as indicated in the map below. Twenty-nine of the basins, as set forth by the bold names below, are considered the main basins, 15 of which are located offshore.

Brazil’s tectonic-sedimentary framework is made up of (1) two ancient crystalline rock shields named the Guyana and Brazilian shields; and (2) many extensive depressions where proterozoic and paleozoic sedimentary basins were formed, particularly the Solimões, Amazonas, Parnaíba, São Francisco, Parecis & Alto Xingú and Paraná basins. The evolution of the Brazilian offshore basins was controlled by events subsequent to the Mesozoic break-up of South America from Africa followed by the opening of the South Atlantic Ocean. It led to rift type basins containing rich oil source rocks, deposited in lakes as rifting began and overlain by unstable salt deposits derived from shallow seas that intermittently engulfed these basins before evaporating. Above the salt deposits carbonates were deposited in an open sea environment, and then covered by a thick section of clastics composed of shales and sandstones, as the waters deepened. At the distal part of these sequences, turbidite sandstones were deposited, as consequence of submarine landslides, forming reservoirs. These carbonates and, more importantly, the individual turbidite fans over large surface areas, are the main reservoirs of the basin.

The offshore Brazilian basins are individually separated by uplifted geological features known as arches or highs, usually related to large fault zones and volcanic ridges.

 

Import and Export

Imports are subject to the following government controls: (1) Secretary of Foreign Trade (SECEX), responsible for supervising registrations and licensing procedures; (2) Central Bank, which approves payments for financed imports; and (3) Brazilian Federal Reserve Service, overseeing customs clearance of the imported products. Imports are also subject to prior written authorization and subject to the ANP’s quality control standards.

Exports of oil and its by-products are also subject to general governmental requirements, in addition to those imposed by the ANP and the CNPE. The ANP can establish certain criteria to be met by a potential exporter. The ANP has the power to grant authorizations for the export of oil and its by-products, as well as condensed and natural gas, with the understanding that domestic demand should not be adversely impacted.

 

Market Opportunity in Brazil

The combination of vast untapped potential oil and natural gas resources with a favorable regulatory framework positions Brazil as one of the most attractive petroleum regions in the world today. A stable, market-driven regulatory framework has been in place in Brazil for over ten years, resulting in the increased participation by global industry players in Brazil’s exploration and production activities.

As a result of recent major discoveries, oil and natural gas potential reserves in Brazil are now recognized as some of the largest in the world. Since 2002, over 9 billion boe have been discovered in more than 50 new oil and natural gas fields, according to Petrobras. Recent exploratory activities have led to the expansion of drilling activities in the Campos Basin, the opening of new frontiers, such as Espírito Santo and Santos Basins, as well as the discovery of highly promising accumulations in the pre-salt layer. According to the BP Statistical Review of World Energy 2009, Brazil’s oil and natural gas reserves were among the fastest growing in the world between 1988 and 2008, increasing at a CAGR of 7.8% from 2.8 billion boe of proven reserves in 1988 to 12.6 billion boe of proven reserves at the end of 2008. In addition, daily oil and natural gas production in Brazil grew at a CAGR of 6.6%, from 1.033 million boepd in 1998 to 1.9 million boepd at the end of 2008.

According to the ANP, Brazil has 7.5 million km² (1.9 billion acres) of sedimentary areas across more than 40 sedimentary basins, of which 29 are considered to be the main basins for oil and natural gas exploration and production activities. Approximately 96% of these sedimentary areas are not yet subject to concession agreements. Industry experts have estimated the potential prospective resources yet to be discovered in Brazil to be between approximately 70-100 billion boe.