Several major Brazilian oil and gas discoveries have been announced in recent months confirming the presence of the massive offshore Santos Basin beyond Brazil’s continental shelf. The oil rich formation lies in a water depth of 2200 meters and is buried several thousand feet below the sea floor, including an overlying salt formation that is up to 2000 meters thick. The lateral extent of this formation is reported to straddle the Brazilian continental shelf and extend for a length of 500 miles parallel to the coast with a width of 125 miles.
Eight wells drilled by the state oil company Petrobras have successfully tested the oil rich formation starting with Tupi 1 in Block S 11 completed in July 2006, followed closely by Carioca, Parati, Caramba, Bem-Te-Vi and Guara each drilled in a separate exploration block between September 2007 and May 2008.
With the exception of Tupi, all five wells showed very high CO2 concentrations and oil properties which made them technically and commercially marginal at lower oil prices. The Tupi well stood out from the rest because it tested 28-30 API crude oil with flow rates of 15,000 — 20,000 barrels per day and only 8 percent C02 in its gas.
In November 2007, Petrobras confirmed its giant “Tupi” discovery with a second well and successful test results. Preliminary estimates reported Tupi’s potential reserves to range from 5 to 8 billion barrels of oil and oil equivalent gas. The Tupi discovery has been hailed as the world’s second largest oilfield discovered in the last 20 years.
A few months later, Petrobras announced its “Lara” discovery in the same exploration block as Tupi. Its estimated recoverable reserves ranged from 3 billion to 4 billion barrels of oil. More recently, Petrobras completed its “Jupiter” well drilled into an adjacent block and reported to contain similarly large deposits of oil and natural gas.
Some analysts now estimate the subsalt reserves of Brazil’s deep offshore basins to total up to 80 billion barrels of oil. If proven reserves are correct and added to its current 14 billion barrels of proven reserves, Brazil would be launched into the league of top oil producers. Its reserves would be placed on par with the reserves of the oil majors of the Arabian Gulf region.
Are these discoveries the beginnings of a new North Sea province? Is Brazil likely to become a future market challenger to the Arabian Gulf oil producers? The answer is definitely no.
Although Petrobras has launched a fast track program to produce its discoveries as soon as possible, by year end 2010 its Tupi production will be limited to one pilot operation delivering 100,000 barrels per day. By 2017, after the full Tupi development of three 100,000 bpd pilots and eight floating production platforms of 150,000 bpd capacity each, its total production will only reach 1.1 million bpd.
In its search for scarce contracting resources, Petrobras is reported to have already leased almost 80 percent of the world’s deep-drilling offshore rigs at premium rates exceeding $700,000 a day. Each of the proposed eight 150, 000 bpd production systems, including floating production processing and storage facilities, water and gas separation, produced water injection and gas compression systems has a preliminary cost estimate of $7 billion. Based on these reported costs, the total Tupi development for the full 1.1 million bpd development would now stands at $70 billion.
For comparison, the Khurais project of Saudi Arabia which has a design capacity of 1.2 million bpd capacity and the Manifa project which has a design capacity of 900,000 barrels per day are reported to have 10 percent — 15 percent of the capital cost of the Tupi development.
Petrobras has cautioned that given the 2000 meters of water depth and 300 kilometers distance from shore, the full development of Brazil’s offshore basins will require “gigantic” financial resources and will necessitate the continued development of new production systems. Some of the challenges include wax deposition and hydrate formation in the flowlines, high pressure CO2 re-injection operations, variable subsurface reservoir properties, and the shortage of critical resources and escalating prices, Between 2020 and 2042, Brazil will need more than 138 platforms, at a cost of $1.7 billion each. It has estimated the total development cost for its offshore basins to range between a staggering $600 billion to $1 trillion.
Based on these costs and technology challenges, it is unlikely that the offshore Brazilian oilfields will do more than replace the declines from other mature offshore regions such as the North Sea, Alaska and gradual production at the offshore Gulf of Mexico.