Left: The third phase of Shell’s Parque das Conchas project in the Campos basin went onstream in March 2016, and it is expected to produce up to 20,000 boed. It is producing to the Espirito Santo FPSO. Photo: Royal Dutch Shell. Center: Found in 2009, Perla is the largest offshore gas field discovered in Latin America, to date, and it is the first gas field to be brought to production offshore Venezuela. Photo: Repsol. Right: Although much of Latin American output comes from offshore developments, operators have had significant onshore success, as well. Photo: Canacol Energy.

Given the ubiquitous industry downturn, it is no surprise that E&P activity in Latin America has declined in recent years. Nonetheless, regional output is rising, and recent discoveries in countries including Colombia, Guyana and Bolivia, are keeping Latin America at the forefront of global oil and gas production.

MEXICO

Through the recent downturn, Mexico has managed to maintain its position as Latin America’s largest producer, and is the sixth-largest oil producer worldwide.

Despite Pemex’s largest discovery in five years, which is comprised of four new fields in shallow water close to giant Cantarell field, E&P activity is still falling. The discovery reportedly has a potential for daily production of at least 200,000 bbl of oil and 170 MMcfg. It comes after final legislation was approved to allow foreign producers to explore and drill in Mexican territory, and to help develop oil in the country for the first time in more than seven decades.

In July 2015, Mexico held its first sale of territory in the Gulf of Mexico. However, only two of the first 13 oil blocks up for auction received qualifying bids. The second offshore auction proved no more profitable.

Even Pemex withdrew from the license auction, in an effort to conserve money and focus on attracting partners for its existing operations. “Pemex has seen its income reduced by more than 50%, due to the fall in the price of oil,” Energy Minister Pedro Joaquin Coldwell told reporters in Mexico City.

Mexico was more successful with the auction of its onshore fields in December 2015, awarding all 25 licensing contracts to Mexican, Canadian, U.S. and Dutch companies. “The drilling density in Mexico is vastly underdeveloped, as it relates to the rest of North America,” said Craig Steinke, CEO of Renaissance Oil Corp. Renaissance won rights to develop three onshore licenses in the auction.

Pemex’s plans for future JVs and higher oil production, however, still have not come to fruition. In fact, like most oil and gas companies, it is simply doing its best to survive the downturn, cutting jobs and selling assets to keep its head above water. Despite every effort, however, Pemex CEO Emilio Lozoya resigned in February, as the company reported 12 straight quarterly losses and failed to reverse falling output, as planned.

Pemex estimates that approximately 460 Tcf of unexploited shale gas in Mexico is worth as much as $2.2 trillion. Though the country has been successful in developing its oil industry outside of Pemex, contributions from private producers to overall output could still be years away.

Mexico is, however, drawing attention from drillers looking to expand their operations south of the U.S. border, and the country is hoping to draw in more of that foreign investment. The country is proceeding with the sale of shale oil and gas fields later this year, which also will include a bidding round for 10 deepwater areas in the Gulf of Mexico. That bidding round is scheduled for Dec. 5.

COLOMBIA

Colombia’s energy industry has been faced with a number of difficulties throughout recent years, in addition to those facing the rest of the world’s energy industry. Permit delays, rebel attacks on pipelines, community blockades and the theft of seismic data are just a few examples of the damaging events taking place in Colombia. Additionally, Colombian demand for gas is beginning to exceed supply, particularly on the Caribbean coast.

Despite the many complications, the country’s upstream sector continues to prosper from an influx of veteran Venezuelan professionals, who fled the oppression of their own country and are now working in Colombia. According to the U.S. Energy Information Administration (EIA), Colombia has an estimated 6.8 Bbbl of recoverable shale oil, and has the third-largest unproved reserves in South America, after Argentina and Venezuela.

Chevron remains the largest producer of natural gas in Colombia. The country’s two largest oil producers, however, state-run Ecopetrol and Pacific E&P Corp., account for at least 85% of total output. Nevertheless, companies including GeoPark Limited, Anadarko Petroleum and Canacol Energy Ltd. have had significant success in the region, as well.

Fig. 1. GeoPark discovered a new light oil field in August 2015, following the drilling of exploration well Chachalaca-1, on the Llanos 34 Block of Colombia. In September, the company reported the discovery of Jacana field, also in the Llanos basin. Jacana was the company’s eighth oil discovery since it entered the block in 2012. Image: GeoPark Limited.

GeoPark discovered a new light oil field in August 2015, following the drilling of exploration well Chachalaca-1, on the Llanos 34 Block, Fig. 1. The well was drilled and completed at a TD of 12,270 ft, and an initial production rate of approximately 1,100 bopd was estimated. This was the company’s seventh oil discovery since it entered the block in 2012.

In September, GeoPark reported another oil field discovery in the Llanos basin. Jacana field is situated southwest of Tigana oil field and follows the same fault trend. According to GeoPark, the Guadalupe and Mirador formations had indications of hydrocarbons during drilling of the Jacana-1 exploratory well, which was drilled and completed to a TD of 10,900 ft. Tests conducted in the Guadalupe formation resulted in a production rate of approximately 1,880 bopd.

In July 2015, Anadarko’s Kronos-1 proved the presence of hydrocarbons in the ultra-deep waters of the Colombian south Caribbean area. Kronos-1, in the Fuerte Sur Block, is 53 km offshore Colombia, and was drilled at a water depth of more than 5,000 ft, reaching a TD of more than 12,000 ft. Anadarko (operator) and Ecopetrol each hold a 50% interest.

Canacol Energy increased drilling in late 2015, and reported plans to more than triple natural gas production in Colombia. In December, the company added two more wells to its Clarinete discovery in the Lower Magdalena basin, further increasing productive capacity by approximately 35 MMcfgd.

VENEZUELA

Since oil was first discovered in Venezuela’s Lake Maracaibo during the early 20th century, the industry has transformed the country’s economy. Venezuela’s oil and gas sector equals about 25% of gross domestic product. Today the country possesses the world’s largest oil reserves, according to the country’s own estimates, although that figure is contested by some independent analysts. Additionally, it is one of the world’s leading exporters.

However, current market conditions have impacted Venezuelan E&P activity heavily. In the last year, the country’s oil output has declined about 70,000 bpd, to 2.83 MMbpd. Drilling is down more than 4%, as well.

Venezuela’s Maracaibo basin contains a wealth of resources, having produced nearly 43 Bbbl thus far, with about 19 Bbbl still remaining. However, with some of the world’s highest inflation rates, the country has economically slowed in recent years, resulting in a stark neglect of the basin’s petroleum deposits.

Despite the decline in output and the decreased rig count, Venezuela continues to produce. Eni began production from the 17-Tcf Perla gas field, positioned in the Gulf of Venezuela, in July 2015. The field is in the Cardón IV Block, operated by Cardón IV SA, a company jointly owned by Eni (50%) and Repsol (50%).

Found in 2009, Perla is the largest offshore gas field discovered in Latin America, to date, and it is the first gas field to be brought to production offshore Venezuela. The reservoir consists of Mio-Oligocene-age carbonates, and lies almost 10,000 ft below sea level, at a water depth of nearly 200 ft. The best wells are estimated to produce more than 150 MMcfgd, each.

Eni has multiple other operations in Venezuela, including the Junín-5 heavy oil block in the Orinoco Oil Belt, which holds 35 Bbbl of certified oil-in-place. In addition, Eni holds a 26% stake in PetroSucre, the operating company at work offshore Corocoro oil field. Petróleos de Venezuela SA (PDVSA) holds the remaining 74%.

GUYANA

Until now, Guyana has been characterized largely by debt and deficient infrastructure. However, Guyana broke into the oil market last year, when Exxon Mobil and Production Guyana Ltd. revealed that large oil and gas deposits had been discovered on the Stabroek Block, approximately 120 mi offshore Guyana.

The estimated offshore find of 700 MMbbl could potentially convert the country from an agriculturally-focused nation, to a global energy dealer. The combined oil and natural gas deposits are reportedly worth about $40 billion, which constitutes more than 10 times the country’s gross domestic product.

The discovery has, however, exacerbated the country’s border dispute with Venezuela. Nicolas Maduro, Hugo Chavez’s successor as president, ordered a cease in drilling, claiming that the area belonged to Venezuela. As a result of claiming sovereignty over Guyana’s waters, a long-time rice-for-oil deal between the two countries came to an end.

BRAZIL

The Federative Republic of Brazil is geographically the fifth-largest country in the world, and the third-largest in the Americas. Regionally, it is the second-largest oil producer, behind Venezuela. In 2015, Brazil’s overall output rose 9.6%, to 2.47 MMbopd. The increase primarily stems from the country’s pre-salt oil deposits offshore. State firm Petrobras claims that some pre-salt wells are producing in excess of 30,000 bopd, making up a significant portion of Brazil’s total output, Fig 2.

Fig. 2. Brazil’s overall output reached 2.47 MMbopd in 2015. The 9.6% increase primarily stems from the country’s pre-salt oil deposits offshore. Photo: Repsol.

In July 2015, pre-salt oil production hit a record 865,000 bpd, as new wells came onstream in the Santos basin, situated about 190 mi southeast of São Paulo. The Santos basin is one of the largest Brazilian sedimentary basins, and it is the site of multiple oil fields, including Petrobras’ Lula, Jupiter, Libra and Sugar Loaf fields.

The investigation into Petrobras for bribery and money laundering is still ongoing in Brazil and the U.S., preventing the company from accessing international capital markets. Consequently, the scandal has forced the company to revise its investment plans and conduct a considerable divestment program to raise money. The investment plan for pre-salt production includes a significant reduction in the number of FPSOs brought online by 2019.

The ongoing investigation is in addition to the country’s deep political crisis, regarding accusations that President Dilma Rousseff had broken budgetary laws to cover losses in Brazil’s deficit. In April, the lower house of Congress went as far as to vote in favor of impeaching Rousseff.

Last year, Petrobras cut its proven reserves 20%, making overall, proven oil, condensate and natural gas reserves total 13.279 Bboe in 2015, down from 16.612 Bboe the previous year. The corruption and more than $100 billion in debt surrounding the key operator of pre-salt projects for Brazil’s oil production is heavily contributing to a bleak future, with respect to the growth of these prospects.

Because most of Petrobras’ oil fields are in the deepwater Atlantic, they are significantly more costly to develop than the onshore deposits found in other Latin American countries.

After its $52-billion takeover of BG Group, Royal Dutch Shell announced that it would be investing more in Brazil’s offshore resources. Shell’s output in Brazil had been in decline prior to the merger, as its Parque das Conchas project in the Campos basin began fading several years ago. However, the third phase of the project went onstream in March 2016, and it is expected to produce up to 20,000 boed. The fields already have produced more than 100 MMbbl since 2009.

With the merger complete, the driller plans to double overall Brazilian output by 2020. Its output already has risen to approximately 240,000 boed, making Brazil one of Shell’s top three oil-producing regions. The combined assets of Shell and BG accounted for 7.6% of the country’s total output last December, which was just over 3.0 MMboed.

URUGUAY

Despite being the second-smallest nation in South America, after Suriname, the Eastern Republic of Uruguay is thriving as one of the most advanced countries on the continent, in terms of growth and infrastructure.

Total has focused heavily on exploration in Uruguayan waters. In early 2016, the company began an extensive search for a giant offshore oil field in the Pelotas basin. “There could be an elephant out there. This is what we’re chasing,” Christian Tichatschke, Total’s exploration director in Uruguay, said. “It’s a very risky project, but we believe we can find something.”

A significant discovery could prolong a surge in exploration in Uruguay, which is a country that imports all of its oil and gas needs. Total’s Raya-1 in exploration Block 14, and subsequent appraisal wells, would have to prove resources of more than 1 Bbbl to make it worthwhile, as the first well is being drilled in more than 11,000 ft of water. According to Wood Mackenzie, that makes it the deepest exploration well, by water depth, on record.

Statoil entered the country for the first time in early 2016, when it acquired a 15% working interest in the block, which covers an area of 6,690 km². Total retains a 50% working interest, and is the operator. The partnership also includes Exxon Mobil E&P Uruguay, with a 35% working interest.

Soon after entering the country, Statoil continued to strengthen its position in the country by agreeing to a farm-in agreement with Tullow, acquiring a 35% working interest in exploration Block 15, also in the Pelotas basin. The block covers an area of more than 8,000 km², and has a water depth of up to about 9,800 ft.

BOLIVIA

The development plan for Margarita-Huacaya field, situated in the department of Tarija in southern Bolivia, is a key project for Repsol. The project, developed by Caipipendi Consortium, is operated by Repsol with a 37.5% interest, together with partners BG (37.5%) and PAE E&P (25%). In November 2015, the project’s third phase was complete. The project reached a record output of 19 MMcmgd, equivalent to more than 30% of the country’s total. This is the largest productive field in Bolivia’s history.

This is not the only E&P project that Repsol has in Bolivia. The company holds the rights to 29 blocks in Bolivia: four exploration and 25 development blocks. Repsol’s production in Bolivia is approximately 40,000 boed, the majority of which comes from the Margarita-Huacaya Block.

In May 2015, Repsol—with state-owned YPFB Andina—made a substantial discovery in Boquerón field in Bolivia’s Santa Cruz region. It was the most significant oil discovery in the country in more than 20 years. Production is expected to begin in 2017, and will reach 6,500 bopd by 2019.

ARGENTINA

The Argentine Republic is home to the second-largest reserves of shale gas and fourth-largest reserves of shale oil in the world. It also is home to some of the most expensive crude in the world. While oil was dipping below $40/bbl in the U.S., oil in Argentina was fetching nearly twice that amount at $77/bbl. Due to a $6-billion energy trade deficit in 2014, the Argentine government is making an effort to boost domestic production.

The development of shale gas and oil deposits in the Patagonia region of Argentina, known as Vaca Muerta, is very important to the country’s oil and gas industry. Comparable in size to the country of Belgium, Vaca Muerta is situated in the Neuquén basin and is one of the top shale plays in the world, with total proven reserves at more than 900 MMbbl.

The number of rigs operating in Argentina has doubled in recent years, and Chevron’s JV with YPF is producing approximately 43,000 bopd. This makes Argentina the world’s second-largest shale producer, behind the U.S.

In February 2016, Total started production at the offshore Vega Pleyade gas and condensate field, situated in the Tierra del Fuego region of Argentina. The project is expected to produce up to 10 MMcmgd (70,000 boed).

Vallourec invests in Brazilian R&D and manufacturing facilities

The difficult economic E&P scenario has led Vallourec to launch several strategic worldwide initiatives, intended to increase product quality and strengthen the company’s financial position. These projects are designed principally to reposition the company’s worldwide operational and manufacturing footprints, ensure sustainable long-term growth, and provide clients with cost-effective tubular solutions.

Vallourec Research Connections Test Center, Belo Horizonte, Brazil.

In Brazil, the oil and gas industry is striving to grow by developing the clustered, pre-salt oil discoveries in the Santos basin. These activities are increasing the country’s importance, and making it a major player in the exploration and development of oil reserves in deepwater fields.

Petrobras faces significant technological and economic hurdles in developing these properties and is seeking tool and supply technologies to overcome the depressed price scenario and the significant reduction in E&P expenditures.

INVESTING IN BRAZIL

In spite of the economic downturn, Vallourec elected to invest in its Brazilian manufacturing plants and R&D facilities. The strengthening of the manufacturing function has been accomplished by combining two existing plants, including the Vallourec Tubos do Brasil S/A and Vallourec & Sumitomo Tubos do Brasil Ltda., a JV between Vallourec and Nippon Steel & Sumitomo Metal Corp (NSSMC). The blending of these two entities will create, from October 2016, Vallourec Soluções Tubulares do Brasil, with Vallourec holding 85% and NSSMC owning the remaining 15%. The new company will produce customized seamless steel tube components.

FOCUSED R&D EFFORT

Driven by the growing complexity of E&P operations in Brazil, Vallourec is focusing research to develop value-added services and high-end technologies that excel in extreme HPHT conditions and resist corrosion prevalent in pre-salt wells. In November 2015, Vallourec opened its first VAM Connections Test Center in Brazil, and is performing assessments to establish the quality of new tubular products. The analysis will ensure VAM connections deployed in the region are secure and reliable. Another R&D facility, the Vallourec Competence Center (VCC) in Rio de Janeiro, will assist in the development of products used in exploration wells in the pre-salt fields. The facility is also used to design tubulars for structural, automotive, transport and robotics purposes.

Throughout the world, Vallourec’s six research centers and team of talented engineers are working to solve the challenges created by the current economic condition and the increasingly complex operating environments.