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Jeff Fick : Brazil: subsalt oil
development begins to make progress


Despite stagnant production over the last three years and a succession of missed output targets, Petrobras' subsalt development is progressing well. It is conventional production from existing assets where the state oil company has taken its eye off the ball.

Although still hampered by supply chain constraints, Petrobras is steadily ramping up its subsalt development capacity and reducing costs.

Brazil and its state-run oil company, Petrobras, stunned the global energy industry in 2007 by announcing the discovery of billions of barrels of crude oil in what is effectively a whole new oil frontier - the subsalt. Although pumping oil buried more than four miles below the ocean's surface presents immense challenges, subsalt development is expected to turn Brazil into one of the world's top five oil producers and a leading crude exporter by the end of the decade.

Crude oil output in Brazil is expected to reach 5 million b/d by 2020, then level off at an average of 5.2 million b/d over the ten years to 2030, according to Petrobras' latest strategic plan.

The total includes Petrobras' net output, the volume produced by Petrobras on behalf of the company's partners in the subsalt and the government's take from fields under the country's production sharing regime. The company's forecast is largely in line with other estimates by consultant groups, market analysts and government agencies of 4.5 million-5.4 million b/d.

The final tally for Petrobras' slice of production will come at or just below the company's 4.2 million b/d target, industry watchers predict.

"The final number will be somewhere between 4 million-4.2 million b/d by 2020 or 2021, depending on market conditions and when the platforms are ready," said Ernani Teixeira, a professor at the Federal University of Rio de Janeiro. "The oil is there below the seabed and current prices will support its development. Without a doubt, Brazil is the world's biggest oil frontier."

Missed targets

The key issue with these forecasts is that Petrobras has typically failed to meet its production targets in recent years.

The company expected production to remain stable at 2.02 million b/d last year, but ongoing maintenance shutdowns at aging offshore platforms and continued declines at mature fields resulted in output of just 1.93 million b/d. Output has been broadly stagnant over the last three years.

Petrobras predicts a turnaround in 2014 having taken delivery of nine new offshore production facilities, representing more than 1 million b/d in output capacity, over the past 18 months. The company has forecast output growth of 7.5% this year, but delays installing some of the new platforms and a shortage of support ships needed to connect wells have again limited production growth.

In May, Petrobras produced 1.975 million b/d, up 4.4% from May 2013. For Petrobras to meet its target of 7.5% growth, investment bank Credit Suisse estimates that the company will have to increase production by 2.4% per month through the rest of the year.

However, it is not subsalt development that is underperforming. Petrobras has achieved near-monthly production records from subsalt fields. In May, 470,000 b/d were extracted from 25 subsalt wells, according to the company.

The subsalt then broke the 500,000 b/d mark June 24, with production rising to 520,000 b/d July 1. Brazil's subsalt output reached 500,000 b/d in eight years compared with ten years for that level of output from the North Sea and 20 years for the US Gulf of Mexico.

Crude oil output from the subsalt is expected to top 600,000 b/d by end-2014. Petrobras expects the Santos Basin subsalt fields to produce 1 million b/d from 19 Floating, Production, Storage and Offloading vessels in 2017.

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Jeff Fick is a reporter an analyst with Platts. Petroleumworld not necessarily share these views.

Editor's Note: This commentary was originally published by Platts on Aug 01, 2014. Petroleumworld reprint this article in the interest of our readers.

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