Brazilian deepwater prospects “cautiously optimistic” ahead of upcoming oil auction

Mariana Durao, Bloomberg December 12, 2023

(Bloomberg) – Cautious optimism about Brazil’s future oil prospects is building in Brazil ahead of a Wednesday oil auction thanks to discoveries that TotalEnergies SE and Shell Plc have made on the other side of the Atlantic Ocean. 

Source: Petrobras

The Pelotas basin in southern Brazil, where the oil regulator will be offering exploration acreage, is viewed as geologically similar to Namibia where the two European oil majors are busy drilling to determine the size of recent finds. The African country was connected to South America before the two continents started separating more than 100 million years ago, and Pelotas is viewed as Brazil’s best geologic analogue.

Oil exploration in Brazil needs a shot in the arm. A decade has passed without any major discoveries in the nation’s waters despite attempts by the world’s most experienced offshore drillers. Petroleo Brasileiro SA, Exxon Mobil Corp, Shell and Total have all explored the pre-salt region of the Atlantic without uncovering major fields. It means that Brazil’s oil production will peak around the end of the decade unless new deposits are discovered and developed.

“The pre-salt boom is over,” Magda Chambriard, a former head of Brazil’s oil regulator, known as the ANP, said in an interview. “It’s time to look for new frontiers so Brazil can keep producing oil.” 

The ANP is offering a total of 602 oil blocks that span areas on land in the Amazon basin to deepwater regions in northeastern and southern Brazil under concession contracts, with minimum signing bonuses totaling 259 million reais ($52 million). An additional five blocks will be offered in the pre-salt region under a production-sharing model where bidders win by offering the government the largest percentage of profit oil.

Brazil’s oil industry has also run into other headwinds. Environmental authorities have thwarted efforts to explore a deepwater region known as the Equatorial Margin amid increasing pressure globally to shift away from fossil fuels. A recent slump in oil prices is likely to make bidders cautious.

Still, Latin America’s biggest oil producer holds plenty of potential, even in the pre-salt, said Pedro Zalan, a geologist and consultant who previously worked at Petrobras. Operators need to stop trying to replicate the success that Petrobras had earlier this century and look for different geologic structures, including one in the Santos basin that is on offer on Wednesday, that could hold commercial volumes of oil, he said.

“It’s time to test new ideas in the pre-salt,” Zalan said.  

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