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Pre-salt: the new frontier

06th November 2012

Oil & Gas Technology reports as the country’s state-led oil and gas giant Petrobras looks back on its achievements in the pre-salt and at the technological challenges ahead.

Pre-salt: the new frontier
Petrobras CEO, Maria das Gracas Silva Foster

The discovery of Brazil’s pre-salt fields in the past decade has catapulted the nation into the pantheon of emerging global oil powers.

Since the discovery of the Tupi oilfield in the Santos Basin, it has been estimated that the huge network of pre-salt fields clustered between the Campos and Santos Basins may hold between 50 and 100 billion barrels of oil trapped under layers of rock and salt: a “North sea of oil,” as termed by Petrobras’ London head of exploration and production Francisco Nepomuceno Filho.

To say that the potential impact of these discoveries is vast is by no means controversial. The Tupi field alone is expected to herald some 500,000 barrels of oil per day by the end of this decade. This has spurred Petrobras to raise its stakes and aim to double oil output by 2020, reaching around 5 million barrels of oil per day. The pre-salt could thus potentially help Brazil to contend for a place in the top three of the world’s oil producing countries.

The question now, according to Nepomuceno, is how best to access the pre-salt’s great potential.

Now and ahead: Petrobras’ technological strategy

“The pre-salt’s [proven] reserves [15 billion barrels of oil equivalent] hold more than double Petrobras’ current reserves,” Nepomuceno told OGT on the sidelines of Energy @ Rio, an event held at London’s Somerset House and which showcased the opportunities available to investors in Rio de Janeiro.

Nepomuceno cut to the chase: “We need technology to reduce costs and improve the efficiency of drilling and well completion operations. Drilling and completion currently represent 50 per cent of our capex.”

“We opened our offices here in London just to come very very close to the technology used here; in the North Sea; in Norway; in Aberdeen; and in Newcastle to bring back to Brazil to continue at the forefront of oil and gas technology.”

The question of accessibility, cost reduction and efficiency improvement has indeed taken the limelight within the firm since one of its crown jewels, the Tupi field was declared commercially viable in 2010.

In the 2011 Petrobras Technology Report, CEO Maria das Graças Silva Foster highlighted how “technological innovation is crucial” to unlock the pre-salt’s vast riches and, in so doing, to raise Brazil’s global stakes in terms of hydrocarbon production.

The firm’s technological developments over the course of 2011 pay testament to its stated ambitions, as it showcased projects able, among other things, to more accurately measure the distribution of sediments during layer formation and reduce drilling time.

Some USD 1.5bn was spent on research and development throughout 2011, 47 per cent more than in 2010, Foster said.

“We plan to invest an average of USD 1bn in research and development per year over the next five years,” Nepomuceno told OGT.

The crucial links: academia

The oil company’s main research centre, Leopoldo Américo Miguez de Mello Centre for Research and Development, also known as CENPES, masterminded the technology showcased in the 2011 report. Petrobras also conducted research in conjunction with Brazilian universities and other sector partners.

“Now we are working below the layer of salt,” Nepomuceno said, “as such we are mostly concerned with basement tectonics”. “With this in mind, we developed a structural basement geology project with London Imperial College,Cardiff University and in conjunction with Brazilian universities to assess the pre-salt in Brazil.”

Petrobras cannot hope to strike gold in the pre-salt without significant investment in R&D; in addition, universities are poised to play an integral part in determining pre-salt success. The campus ofRio de Janeiro’s federal university, UFRJ, for instance, houses and holds close ties with Petrobras’ research centre Cenpes.

“The university [UFRJ] is getting ready for… [Petrobras’ future technological] plans in a variety of ways,” said Mauricio Guedes, director of the Rio de Janeiro Science Park, an engineering research centre at the School of Graduate Studies in Engineering, Federal University of Rio de Janeiro (COPPE/UFRJ).

“We have had a large flow of investment in laboratorial infrastructure over the past three to five years, with hundreds of millions of dollars directed to our laboratories, and specifically to our school of graduate studies in engineering, COPPE,” he emphasised.

UFRJ has worked to meet the demands of oil and gas firms particularly in the engineering and geological sectors, Guedes explained. This is reflected in the university’s booming technological infrastructure.

“We have a large laboratory at the campus, LNDC, which focuses on non-destructive testing, corrosion and fracture mechanics for the oil industry and which has been of great service to Petrobras. We also have an oceanic tank where we simulate platform operations up to a depth of 3,000 metres,” he said. “This whole infrastructural network at the university is very important for the national oil and gas sector.”

The crucial links: Western technology

In addition to Petrobras, UFRJ holds partnerships with several other oil and gas technology firms, such as BG and Schlumberger.

Schlumberger in November 2010 opened a new research and geoengineering centre in Rio de Janeiro, its first in the southern hemisphere. Close to the academic expertise of UFRJ, it is located on the same campus that houses the Petrobras CENPES research centre. Its main purpose is to improve hydrocarbon production and recovery from the complex deepwater reservoirs and pre-salt carbonates offshore Brazil.

“We have very specific problems, such as characterisation of carbonate reservoirs and carbonate geophysics. Schlumberger has said that their centre will address our pre-salt needs. That is their promise,” Nepomuceno told OGT.

But Schlumberger is not the only Western technology provider which is strategically placed to cater to Petrobras’ future exploration and production requirements. “Petrobras has had these [technological] needs for many years,” president and CEO of GE Brazil Adriana Machado told OGT. “Companies like GE have worked very closely with the Brazilian firm, for instance with the well heads that we produced in Jandira [state of São Paulo] to serve Petrobras.”

GE in 2009 won a USD 250m deal to supply 250 VetcoGray subsea wellhead systems to Petrobras for deeper offshore drilling, the largest contract at the time in the industry. The technology was produced at GE’s facility in Jandira, state of São Paulo.

“Every time there is a bid, there are new requirements,” she added. “And so you have to try to put more technology and more innovation into the process.”

“In 2010, after brokering agreements with local firms and the government, we announced that we would open our fifth global research centre inBrazilto meet the technological needs of firms such as Petrobras.”

GE announced in November 2010 that it would be investing USD 100m into a multi-disciplinary Brazil global research centre to be located on the Ilha do Bom Jesus,peninsula of Rio de Janeiro.

When fully operational in 2013, the research centre will focus on advanced technologies for the oil and gas, renewable energy, mining, rail and aviation industries. “We have decided to invest a lot in the subsea sector, one of our research verticals, after holding initial talks with Petrobras to assess their needs in the pre-salt,” Machado said.

“Petrobras does have a considerable investment in research and development. But they need to see things happen. They need to see the plans that they have announced through. The closer we become with Petrobras, the more we will be able to help them succeed,” Machado stated.

Pre-salt imperative to meet production goals

Despite talking specifically about GE, Machado stroke a key note in her last remarks. Petrobras’ ambitious USD 236.5bn 2012-2016 business plan announced in July, the world’s largest corporate spending program to date, fosters high hopes to raise exploration and production in the country to historic levels. Petrobras plans to invest more than half of its investment budget, USD 131.6bn in exploration and production alone in the next four years.

However, Petrobras could be making a dive into a shallow pool.  The oil and gas giant announced in early August its first quarterly loss in 13 years. From USD 6.4bn of net income in Q2 last year, it plunged to some USD 665m in losses this year.

Petrobras listed high exploration costs and lack of drilling success as some of the causes for the dip, as it announced 41 dry wells in 2009-2012 and a fourfold multibillion dollar increase in exploration and production costs.

Against this less encouraging backdrop, the pre-salt could well become a safe haven to the company, as it ambitiously attempts to pick up production and break the 5 million barrels per day mark by 2020.

Regardless of the outcome of the company’s plans, there is little doubt that success will depend on a triad: Petrobras; Brazilian and Western universities capable of assessing and addressing Petrobras’ pre-salt obstacles: as well as Western firms able to provide more efficient and cheaper technology.