Every 1st November, throughout Latin America, revellers celebrate Dia de los Muertos, or Day of the Dead. The festival is marked by feasts and processions dedicated to the departed. In some ways, Dia聽de聽los聽Muertos serves as a metaphor for Latin America鈥檚 oil and gas industry; for many years, pundits have been predicting its imminent demise due to nationalisations, lack of investment and hostile investment climes. Yet it always rejuvenates itself and rises to the fore; the region currently produces over 10聽million聽bpd and 204聽billion聽m3 of gas, and is expected to reach 12.4聽million聽bpd and 237聽billion聽m3 by 2015.
Brazil
Brazil is leading the parade with a combination of technology, skill and investment. Thanks to advances in seismic, drilling and offshore production, Petrobras and its international partners are in the process of delineating and producing what may amount to as much as 100 billion bbls of recoverable crude from the pre-salt formations in the Campos and Santos Basins. Some recent discoveries include;
- Petrobras encountered several hundred million聽bbls of 27掳 gravity oil in carbonate reservoirs in the southern part of Sapinhoa field.
- Sinopec, Repsol and Statoil estimate that their discoveries in the Seat, Gavea and Pao聽de聽Acucar prospects now contain 700聽million聽bbls of recoverable oil and 3 trillion ft3 of gas.
- Petrobras extended the Carcara prospect, penetrating through 171聽m of 32掳 gravity oil. The company has yet to determine the lower limit of the oil column.
The extreme operating conditions (most of the new discoveries are over 300聽km from shore, and in water depths approaching 10聽000聽ft) have slowed bringing the fields onstream. In late 2010, Petrobras and partners formally brought its 5聽-聽8聽billion聽bbls Lula field online with a 100聽000聽bpd floating, production, storage and offloading (FPSO) unit. They expect to commission the second, 120聽000聽bpd FPSO in 2013, boosting production to 220聽000聽bpd. A third, 120聽000聽bpd FPSO will be deployed in nearby Guara field, also in 2013.
Much more is set to come. In June, Petrobras committed to spending US$聽236.5聽billion (an average of US$聽47.3聽billion/yr), on exploration and production over the next five years. Much of that will go toward a new fleet of rigs designed to explore the pre-salt play, but the company is also investing heavily in a dozen FPSOs. Crude oil production is predicted to rise from 2.2聽million聽bpd to 3.65聽million聽bpd in 2015 as new deepwater fields come onstream and subsalt discoveries increase their contribution. The country鈥檚 total production, now at 2.7聽million聽boe/d, is expected to rise to over 5.7聽million聽boe/d by 2020.
Several factors may impede rapid growth, however. In 2009, Brazilian President Luiz Inacio Lula da Silva (Lula) froze further lease sales in the pre-salt and announced an overhaul of resource legislation. Substantial progress has been made toward a new system, including putting Petrobras in charge of developing the massive pre-salt deposits, but President Dilma聽Rousseff still has to deal with royalty changes and a fund distribution system to compensate states with no oil production. In addition, preference for Brazilian-sourced equipment has the potential to cause delays and contribute to project cost inflation. Plans for a nuclear-powered submarine fleet capable of protecting the underwater fields would place further strains on Brazil鈥檚 vessel construction sector. Several major exploration companies have announced plans to downgrade their presence in Brazil and seek similar geological pre-salt plays off the West聽Coast of Africa. But the government remains firmly committed to a fiscal and regulatory climate that allows both national and international firms to participate in the bonanza.
Colombia
Colombia has made major strides to create a healthy investment climate and open up its immense potential to international explorers. 鈥淵ou take knowledge and resources and put them together to find opportunities, and you end up with success,鈥� says Octavio Urdaneta, Manager for Bogot谩-based Petro Rubiales. His company has earned bragging rights; since it was founded less than a decade ago by seasoned Venezuelan expatriates, Pacific Rubiales has climbed from 14聽000聽boe/d to 235聽000聽boe/d in mid-2012. 鈥淲e have set a goal of 500聽000聽boe/d by 2016,鈥� says Urdaneta.
Colombia鈥檚 success can be directly attributed to a decade long effort to establish peace and regulatory stability. In 2002, President Uribe began a campaign to regain control of large swathes of land seized by insurrection groups such as FARC, and to eliminate the widespread destruction of infrastructure and kidnapping of personnel. In addition, the country opened up the oil and gas sector and established generous royalties to encourage outside investment. International expenditures now exceed several billion dollars annually. PetroMagdalena Energy recently discovered 25聽ft of net pay in the Upper Guadelupe sands on the Cubiro block in the Llanos basin. The 1.5聽km structure produced 530聽bpd in tests. Gran Tierra Energy Inc., Calgary, tested 2525聽bpd at the Ramiriqui-1 discovery well in the Llanos basin. The 19聽519聽ft well encountered more than 20聽ft of 26 API gravity oil. Petroamerica Oil Corp., Calgary, encountered 40聽ft of net oil pay in the Mirador formation in the Llanos basin. The discovery well flowed 860聽bpd of 37 API gravity oil.
Violence against the sector has not been completely suppressed, however. In 2011, a series of kidnappings marred the beginning of Colombia鈥檚 new administration, headed by President Juan Manuel Santos. In late 2011, union violence flared at the Rubiales field, with workers vandalising property. In early 2012, Production from PetroMagdalena鈥檚 Cubiro block was interrupted by road blockades in the region, and about 3700聽bpd had to be shut in. The government is working with industry to address community issues, and vows to remain vigilant against resurgent terrorism.
Mexico
Mexico has suffered a prolonged slide in production due to the decline of the giant Cantarell field. As recently as 2004, the country鈥檚 production stood at 3.8聽million聽bpd, but now hovers in the 2.5聽million聽bpd range. Mexico has over 10聽billion聽bbls of recoverable reserves, however, and several recent developments indicate significant potential for reversing the production decline. Earlier this year, it tested 5600聽bpd and 255聽000 m3 of gas from the Kinbe-1 well in shallow waters in the Gulf of Mexico; Pemex now posts 1.5聽billion bbls of proven, probable and possible oil reserves for the Tsimin, Xux and Kab fields. Pemex also encountered 3700聽bpd and 227聽000聽m3 of gas from the Pareto-1 well in Tobasco state; the company has already identified similar geological potential in several nearby locations.
Pemex has also made significant strides in other major fields through improved technologies and better operational practices. Production in the highly complex Ku-Maloob-Zaap (KMZ) field, which stood at 513聽000聽bpd in 2007, has since risen to over 840 000 bpd, and the company hopes to reach 1 million bpd by 2015. The Chicontepec field, located in the state of Veracruz, has seen a 39% increase in the last year, from 44聽000聽bpd in 2011, to 58聽000聽bpd in 2012.
The offshore Gulf of Mexico offers the greatest potential benefits. US federal authorities reckon that up to 15聽billion聽bbls of undiscovered, recoverable oil lay in the deepwater in their portion of the Gulf, and the geological conditions extend into Mexican waters. So far, Mexico has had little success on previous deepwater tests, mostly yielding gas reserves, but joint ventures with seasoned Gulf veterans such as BP and Chevron could lead to enough major discoveries over the next decade to offset Cantarell鈥檚 demise.
Venezuela
In spite of President Hugo Chavez鈥檚 efforts to derail his country鈥檚 oil and gas sector, Venezuela is once again heading back toward regional prominence with resurging production.
The country鈥檚 plunge began in 2007, when the Chavez regime nationalised major projects in the Orinoco heavy oil belt region by awarding 60% ownership to state oil company PdVSA. Although several companies, including BP, Chevron and Total, accepted compensation offers, ExxonMobil and ConocoPhillips filed multi-billion dollar claims in the 91天堂原創 Bank鈥檚 International Centre for the Settlement of Investment Disputes (ICSID). The subsequent purging of professionals opposed to the government from PdVSA resulted in a plunge in production from 3.5 million bpd to an estimated 2.4 million bpd.
But the sheer magnitude of Venezuela鈥檚 reserves (approximately 1.2聽trillion聽bbls of oil in place), means that the country cannot be ignored. National Oil Companies (NOCs) and International Oil Companies (IOCs) are piling in with large investments in order to gain a foothold in the immense deposits.
Although windfall profits tax and other unilateral moves toward confiscation will continue to make Venezuela a high risk investment venue, analysts predict that output will gradually rise to 3.1聽million聽bpd by 2015, and 4聽million聽bpd by 2020.
Argentina
Argentina has abandoned its traditional Tango in favour of simply shooting itself in the foot. In April, a decade after committing the biggest sovereign debt default in history, the federal government announced it was seizing 51% of oil producer YPF SA from Spain鈥檚 Repsol (which had purchased the shares after YPF was privatised in the 1990s). The government blamed YPF (which produces about one-third of the country鈥檚 oil and gas) for Argentina鈥檚 downward spiral, and said that it should invest more in E&P. Repsol denied the charges, and intends to take the matter to international arbitration.
Argentina鈥檚 move may jeopardise the development of one of the largest sources of unconventional resources in the world. In early 2011, the US Energy Information Administration (EIA) published a report that the country could contain up to 774聽trillion聽ft3 of recoverable shale gas, mostly in the Neuquen basin in western-central Argentina, and Golfo San Jorge, in the southeast. Several international oil and gas companies have established comprehensive land packages in the region and are beginning to gain a stronger understanding of its potential. Apache Corp and partner Americas Petrogas initiated a long term test of the Vaca Muerta shale in the Huacalera block in the western Newuqen basin and encountered significant flowrates from a 360聽ft perforated section. Industry analysts reckon that an investment of US$聽25聽billion annually would double Argentina鈥檚 current production of 551聽000聽bpd of oil and 3.3聽billion聽ft3/d of gas by the end of the decade. With the seizure of YPF, however, any substantial future investment would be highly risky.
Conclusion
While future production growth for Latin America looks bright, consumption is also on the rise. Oil demand was 8.43聽million聽bpd in 2010 and is forecast to rise to 9.5聽million聽bpd by 2015. Gas consumption was 16聽billion聽ft3/d in 2010, and is expected to exceed 20聽billion聽ft3/d by 2015, largely due to population and economic expansion. While countries such as Brazil and Venezuela will have little difficulty meeting demand growth, Mexico may become a net importer of crude within the decade, and Argentina may suffer far more serious gas and power disruptions.
Written by Gordon Cope.
This is an abridged version of the full article from Gordon聽Cope, which was published in the September 2012 issue of 91天堂原創聽Pipelines, available for subscribers to .