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Alexander Khurshudov: No oil paradise in Brazilian offshore

October 19, 2017/ 09:45

The remote sunny Brazil is not only home for mysterious wildlife (these words borrowed from the Russian song), the famous carnival and corruption, but also for oil in deep waters offshore. A year ago the new government made it much easier for foreign companies to get to the reserves in the Atlantics, so now there’s a bit frenzy. At the last auction such large companies as Total, BP, ExxonMobil, Shell, Repsol and the Chinese CNOOC competed for the bids. The winners were the Brazilian Petrobras and ExxonMobil consortium which are to pay a nice bonus of $1.08 bln to the government. The Brazilian authorities were so happy with the auction that they decided to hold 8 more auctions like that and now they aspire to double oil production. And so I wonder how realistic such claims are.

1. General information

The main oil producer in Brazil, the national oil company Petrobras declared 12.5 bln barrels of  oil equivalent reserves, which have reduces by 24.7% during the last two years. This is obviously due to the decrease in oil prices and also to the fact that exploration activity reduced a lot and failed to compensate for the growing oil extraction. Picture 1 shows the dynamics of reserves and production for the country in general.    


Most of the oil is produced in deep water offshore. Note that traditional sea platform stop being cost-effective and reliable in waters over 300 meters deep, so the production is done from FPSOs, which are basically marine vessels (pic.2).

Pic.2. Oil production in deep water offshore schematics (-34 is the Floating Production, Storage and Offloading vessel)

Brazilian offshore fields are grouped into three oil provinces, with the most important being Campos Basin and Santos Basin (pic.3).


2. Campos basin

This area covering around 100 thousand square km has been under development since 1977. 40 oilfields have been discovered here and 60% of Brazilian oil is being produced. A part of the area covers shallow water zone (less than 300 m) and even onshore, but most of it refers to deep water offshore from 300 to 2000 m. Productive formations are associated with Miocene and Upper Cretaceous. Below them there is a layer of salt deposits up to 2 thousand m thick (pic. 4), which consist of halite (sodium chloride), anhydrite (calcium sulphate) and inclusions of  potassium and magnesium. Under high pressure and temperature the salt is plastic so huge salt domes formed as the salt deposits were pushed from the underlying strata. 


Below the salt deposits there are Low Cretaceous sediments, predominantly limestones severely faulted. Deeper still there are rift sediments formed as a result of marine microorganisms’ activity. A few years ago large oil deposits were discovered in the pre-salt formations of Campos basin. The total thickness of the pre-salt formations is 200-400 m, with the oil deposits often overlying aquifers.

The production maximum in the Campos basin was reached in 2011 and amounted to 1.73 mln bpd. The production decreased by 28.1% and reached 1.35 mln bpd within 5 years that followed. The production decline is slowed down due to the introduction of pre-salt wells, which accounted for as much as 90 thousand bpd back in 2013. Petrobras operates 37 floating  platforms and 15 fixed ones, three pipeline corridors are constructed to transport oil and gas onshore (pic.5).       

Pic.5. Production facilities schematics for Campos basin

3. Santos basin

Oil deposits in Santos basin covering 350 thousand square km are concentrated in the pre-salt sediments, unlike those of Campos basin. Large oilfields are located further offshore (170-300 km) and in deeper waters (2000-2300 m). The productive formations are composed of biogenic carbonates (pic. 6) with the average porosity of 7-12%. There are also some solid fractured layers.

Pic.6. Pre-salt sediments core samples

The formations are severely deformed by tectonic activity (pic. 7), when large faults caused the rocks to move for thousands of meters. Extensive fracturing causes high productivity of the wells, up to 4 thousand tons per day.  

Pic.7. Geologic cross section of the formations around Libra oilfield 

The pre-salt sediments in the Santos basin were discovered in 2006 and put into operation in 2009. In the middle of 2013 the production from the pre-salt sediments reached 300 thousand bpd, last year Petrobras announced that they reached the level of 1 mln bpd. 2 fixed platforms and 9 floating ones are operated there and 2 pipeline corridors are constructed (pic. 8). 

Pic.8. Production facilities schematics for Santos basin

4. Problems

I am not going to even talk about the problems associated with drilling and operating the subsea wells and floating platforms. These are the most complicated operations in oil production. Currently about a half of the wells drilled deep water offshore do not reach target depth due failures. Though, as the time goes by the equipment is going to be updated and technical problems won’t be so acute. So I’d rather dwell on the other issues.

Remoteness from the land. It increases all the costs, but most of all it hampers utilizing associated gas. Subsea pipeline 250-300 km long costs almost $1 bln and heavily burdens the whole project. Meanwhile the Brazilian authorities monitor gas flaring very closely and there were cases when they forced companies to reduce production for violating licence terms.

Tropical storms. Hurricanes are rare at the coast of Brazil, but storms can happen like they do everywhere else. During severe storms accident hazard increases, so the tankers stop transporting oil and the floating platforms have to suspend production. During cool season (2-3 quarters) the production is 2-3% higher than during the hot seasons.

Viscous heavy oil. A little data on the oil’s viscosity is available, but its density varies from 880-960 kg/m3 and heavy oils never have low viscosity. Water replaces such oil with difficulty, so the recovery factors vary from 20 to 25%. Additional wells have to be drilled to increase the RFs, but each well would cost $50-70 mln, making the expenses surge with the profit declining…

Very heterogeneous fractured formations. I’ve had some experience of working with fractured formations and I have to say that the first years of operating such an oilfield is nothing but pleasure. Production rates in Grozny reached 2-3 thousand t/d and they had to be limited to prevent water breakthrough. Then, after intense extraction the formation pressure dropped and it had to be urgently restored by water flooding, which only facilitated water cut growth. The same is going to happen in the pre-salt formations in the Brazilian offshore fields, while water breakthrough is even more probable there because the water-oil contact has been penetrated by many wells.

5. Examples of the oilfields

The table shows a brief characteristic of some Brazilian offshore fields. I have to say that the information is very sparse and hardly ever available after 2013. So the only criterion for selecting the oilfields was the presence of data. 

The table indicates that not all the oilfields impress with their size and reserves. In shallow waters there are small oil deposits of just 10-14 mln tons. Note that the area of many oilfields in the Santos basin is unknown yet. They are poorly explored. Now let me give you some examples.

A large oilfield Marlim in the Campos basin is located 110 km offshore Rio-de-Janeiro in the waters 650-1050 m deep. It was discovered in 1985, put on stream in 1998. The productive sandstone 75 m thick has a fantastic permeability of 2 darcy. The oil is viscous and heavy with the average density of 950kg/m3. Oil-in-place is estimated to amount to 9 bln barrels, recoverable reserves 1.7 bln (242 mln t).   

By the end of 2002 129 subsea wells had been drilled in the Marlim field (86 producers and 43 injectors), the total amount of investment is estimated at $5 bln. Production is done using electrical submersible pumps. In 2007 they produced 350 thousand bpd (19.3 mln t/year) of oil and 250 thousand bpd of formation water. 700 thousand bpd of water were injected to maintain the formation pressure. More recent information is not available. 

The Barracuda oilfield is located 160 km East of Macae. It was discovered in 1998 and put on stream in 2004. To its South there is the Caratinga oilfield, and their combined reserves equal 1,230 mln barrels (185 mln t). Contracted by Petrobras a Hulliburton’s subsidiary carried out the facility construction. The total of 55 subsea wells have been drilled there, including 33 producers and 22 injectors. Oil production is 311 thousand bpd, which corresponds to the average production rate of 1.4 thousand t/d. That is a very high production rate, which means that the reserves should be depleted within 11 years.

The Frade oilfield is located in the North of the Campos basin in the waters 1,050-1,130 m deep,  370 km away from Rio-de-Janeiro. It covers around 20 km2. It was discovered in 1986, put on stream in 2009 with the production of 65 thousand bpd. The proved reserves of heavy oil are estimated at 200-300 mln barrels (29-43 mln t). In addition to the 3 exploratory wells the project provided for the construction of 12 horizontal producers and 7 vertical injectors. In fact the field operator Chevron has 11 producers and 4 injectors, tied to a floating platform. The total investment amounted to about $3 bln.

In November 2011 a blowout of oil and gas mixture suddenly happened while drilling an appraisal well. The well was killed in 4 days’ time. 18 floating vessels were used to collect the spilled oil and to abandon the well. The amount of oil lost in the blowout was estimated at 660 t (I wonder how they managed to do it). At the court hearing the prosecutor asked for an unbelievable penalty of  $20 bln, but supported by the Brazilian oil agency Shevron managed to settle the case for just $41,6 mln. Then both drilling and injection were suspended and resumed only 2.5 years later.  

The largest oilfield Tupi in the Santos basin was discovered in 2006 and put in pilot operation in 2012. Later it was renamed Lula oilfield, which is the name of a clam and by coincidence also the last name of Brazilian ex-president. The ocean depth here is 2,150-2,200 m, the top of formation is at 4-5 thousand m. The oil-in-place is estimated at 14 bln barrels, recoverable reserves at 5-8 bln (overestimated, in my point of view). The oil has an average density (880 kgm3), in situ it has a high gas content (285 m3/t), so it has a low viscosity  (1 cPs). The formation pressure is 580 bar. The associated gas contains up to 18 % of carbon dioxide, so it needs to be cleaned.

The pilot operation in the Lula field provided for the construction of 6 producers and 3 injectors, one of which was supposed to inject carbon dioxide into the formation. It will take about 100 wells to fully recover the deposit with the minimum amount of investment around $50 bln. In fact 5 wells with combined production of 107 thousand bpd were drilled in 2013. This year Petrobras employed 3 more floating platforms in the field, probably to add exploration wells. 

The Libra field is considered to be the most productive. It is located to the North of Lula and 200 km away from Rio-de-Janeiro. The depth of the ocean here is 2,200-2,300 m. The field was discovered in 2010. The first exploratory well was abandoned due to stuck pipe in the salt formation, but the second one penetrated the whole oil-bearing interval up to the water-oil contact (326 m) and produced 3,667 bpd (516 t/d) of oil with the density of 890 kg/m3 from the depth of 5,550 m during the well test. The formation pressure is 643 bar, the temperature is 95 . The permeability of the formation is estimated at 5.017 D (!!!), but this could be due to inaccuracy of the short well test.   

After the auction in 2013 the lease went to the consortium of five companies: Petrobras (operator with 40% share), Shell and Total (20% each), the Chinese CNPC and CNOOC (10% each). In the area of about 500 km2 the Brazilian oil agency ANT super-optimistically declares 1-2 bln t of recoverable reserves and the designed production rates of about 3.5 thousand t/d. The problem is that the field is poorly explored, its borders (pic. 9) are defined mainly by 2D seismic data. Besides, when it comes to big depths, oil is easily extracted from fractures, but, as a rule, it is very difficult to extract from porous matrix. I know this from the experience with the fields in the North Caucasus and Timano-Pechora regions; I think we’ll have a chance to see it in the pre-salt deposits in Brazil.

Pic.9. Structural map of the Libra field along the base of the salt.

The Libra field development plan provides for constructing 55% by the end of 2021. However, the results of the auction for a pilot project operations in 2015 were cancelled due to, I quote, “abnormally high prices suggested by the bidders”. The second bidding last December turned out to be more successful.

6. Economics

Development of the deep water offshore made Petrobras company the world’s champion in debt (pic.10). During 2006-2014 its debt grew from $21 bln to $132 bln. It has decreased a little by now, but it is still 5.6 times higher than its annual cash generation. It’s worth to mention that the biggest increase of debt occurred when the oil prices were high, but after they decreased in 2014-2016 the company encountered $71.2 bln losses.

Pic.10. Debt relative to cash receipt

For the last two years the company has been looking for a way out of the crisis: it sold a number of its foreign assets, reduced the count of offshore drilling rigs from 59 to 34, drilling of exploratory wells from 48 to 8 wells a year (6 times!). Oil production cost decreased from $14.6 to $11, but it should be noted that over a third of this decrease is due to the increase in production.  

Last year the company’s sales revenue decreased to $62.6 bln, the scope of investment to $1.16 bln. Nevertheless, Petrobras  places the stake on their offshore pre-salt deposits. For the coming 5 years they plan to invest $74.1 bln, 82% of which would account for exploration and development of the deep water deposits.

I don’t have the slightest doubts that in the initial stage the production from the pre-salt formations will pay back over and above. It’s hard to say how the economic performance will change when the production rates decline and the wells become water cut. Subsea and floating facilities can’t be operated with losses; they might be suspended  until better days, when new enhanced recovery methods appear.

7. Summary

Due to high productivity of the wells, Brazilian offshore fields contain indisputably good oil reserves. Considering the 1.8 bln t already produced and the remaining 1.7 bln t the region can be compared to such basins as the Gulf of Mexico and the Permian Basin in the US, though it falls behind the Middle East basins and Siberia.

However, there is no oil paradise in the Brazilian offshore. Neither above the pre-salt deposits, no below them. The discovered deposits are quite complex, they require a careful approach, which is made difficult by the nature and the managers’ ambitions. This raises the question why Brazilian offshore caused such enthusiasm and competition with the largest global companies. There are two reasons for this.

Firstly, economic risk in the new field is minimal there. If a well produces a million tons of oil during the first year, even under the current prices it pays back for itself and a faulty neighboring well with a number of other facilities. The only hazard is the risk of a blowout, like the one in the Gulf of Mexico, but everyone hopes that this will never happen to them.

Secondly, the global giants desperately lack oil reserves and being in such a desperate demand they are prone to overestimate possible perspectives. It’s worth to mention their recent competition for shale plays: everyone, the careful Chinese included, got themselves into considerable losses.  

Russia would be wise to avoid this hustle around the deep water offshore deposits. It has enough reserves onshore, a lot of discoveries in shallow waters are on the way. Is it worthwhile to look for trouble? 

P.S. the author expresses his profound gratitude to the director of PETROGEKO company, Alexander Sokolov, PhD in Geology and Mineralogy for his valuable clarifications and useful discussions, which promoted the quality of this work.

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