Discoveries guarantee future production

The success of the exploration activities in the pre-salt layer of the sedimentary basins off the southern and southeastern coast of Brazil was the highlight of 2008. And from this, Petrobras will build the foundations that will sustain the company’s oil production growth over the coming decades.

Plataforma de produção P-53, no campo de Marlim Leste
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In August, the company discovered a significant deposit of light oil and natural gas in the area named Iara (in block BM-S-11), within the Santos Basin, which has a recoverable volume estimated at between 3 and 4 billion barrels of oil equivalent (boe). The discovery was made through drilling well 1-RJS-656, approximately 230 km offshore from the city of Rio de Janeiro, in 2,230 meters of water. The new area follows the 2006 discovery in the Tupi area, within the same block, whose estimated recoverable volume, of between 5 and 8 billion boe, was announced in November 2007. Petrobras has a 65% stake in this concession, along with partners BG Group and Galp Energia, with 25% and 10%, respectively.

The company has also detected the presence of light oil (28º API) in the pre-salt layer of the area called Guará, also within the Santos Basin. The reservoir is located in block BM-S-9, operated by Petrobras (45%), in partnership with the BG Group (30%) and Repsol YPF (25%). And the company also announced, in 2008, the discovery of natural gas and condensate in the Júpiter area, located in block BM-S-24, within the same basin, which is operated by Petrobras (80%) in partnership with Galp Energia (20%). Furthermore, a consortium comprising Petrobras (66%), Shell (20%) and Galp Energia (14%) confirmed the presence of oil in the pre-salt reservoirs of block BMS-8 (Bem-Te- Vi), in ultra-deep waters within the Santos Basin.

Off the coast of Espírito Santo, in the northern part of the Campos Basin, two important discoveries were made in the pre-salt layer of the Baleia Azul and Baleia Franca fields, within an area called the Parque das Baleias. The total recoverable volume is estimated at between 1.5 and 2 billion boe (30º API). The estimated total volume of the oil in the Parque das Baleias area, including reservoirs above and below the salt layer, is approximately 3.5 billion boe.

In September, the start of long-term testing at well 1-ESS-103A, connected to platform P-34, in the Jubarte Field, located in the northern part of the Campos Basin, marked the start up of production from the pre-salt layer off the coast of Espírito Santo.

NEW OPERATIONS - During the year, two new platforms started their activities in the Campos Basin. In April, the FPSO Cidade do Rio das Ostras started operating in the Badejo Field. This is the company’s first platform designed to produce extra-heavy oil, and it has a production capacity of 15 thousand bpd and storage capacity for 200 thousand barrels of oil. In November, the P-53 platform came on-stream in the Marlim Leste Field, with a production capacity of 180 thousand bpd of oil and 6 million m3/day of natural gas.

of oil and 6 million m3/day of natural gas. In 2008, these two projects, together with increased production from the platforms installed in 2007 (FPSO Rio de Janeiro, Piranema, FPSO Cidade de Vitória, P-52 and P-54), not only offset the natural production decline elsewhere, but generated a 3.5% increase in the production of oil and NGL, which reached an average of 1,855 thousand bpd.

During the year, a total of 373 wells were drilled and completed for production development, 345 of them on- shore and 28 offshore. Another 135 wells were drilled for exploration, 88 of them onshore and 47 offshore, and 37 are awaiting evaluation. The company achieved a 44% exploration success rate.

The average lifting cost, not including the government take, was US$ 9.26 per boe, up by 20.3% in relation to that of the previous year. Adding the government take pushes the average cost up to US$ 26.08 boe, 34.5% more than the figure for 2007. In local currency, the average lifting cost was R$ 17.08, 14.8% higher than the previous year’s figure. And including the government take, the cost was R$ 47.61, an increase of 28.6% over that of 2007. This difference between the dollar and real cost increases is due to the 6% appreciation of the real against the dollar (average rate) during the period in question.

NATURAL GAS PRODUCTION

The domestic supply of natural gas has increased significantly, due mainly to the augmented capacity of the system of distribution, the operational start-up of the P-52 and P-54 platforms, in the Roncador field, towards the end of 2007, and the new production systems installed in the Peroá field.

Natural gas production averaged 51.1 million m3/ day, an increase of 17.8% over the figure for 2007. This rate of growth should be maintained in 2009, with the operational start-up of the P-53 platform towards the end of 2008 and of the P-51 platform early in 2009, as well as the continued implementation of projects under the Plan to Accelerate Gas Production (Plangás).

OIL AND GAS DISCOVERIES

In addition to the discoveries in the pre-salt layer, Petrobras achieved significant success in exploring other regions of Brazil.

A deposit of light oil was revealed in a Block BMS- 40 area called Tiro, located in shallow waters of the Santos Basin. Testing carried out by Petrobras – the exclusive concession holder for this block – confirmed an estimated production potential of 12 thousand bpd. A second discovery of light oil was made in shallow waters within the Sidon area, in the same block, just 9.3 kilometers from Tiro. Preliminary data for these two areas suggests a recoverable volume of approximately 150 million boe from this block.

Another discovery was made in the Espírito Santo Basin, through well 4-GLF-23-ESS, in the Golfinho field. The estimates indicate a recoverable potential of 60 million barrels of oil. And in the southern part of the Jequitinhonha Basin, the drilling of well 1-BAS-147 confirmed the presence of hydrocarbons in reservoirs above the salt layer, at a depth of about 3,630 meters. The well is located in concession BM-J-3, in which Petrobras (the operator) and StatoilHydro are partners, holding 60% and 40% stakes, respectively. This block is situated some 74 kilometers from the coast of the state of Bahia, in 2,354 meters of water. This discovery suggests considerable potential in that basin, where Petrobras has a 100% stake in two other exploratory concessions, BM-J-4 and BM-J-5.

THE PRE-SALT CHALLENGE

The pre-salt layer in the sedimentary basins off the south and southeast coast of Brazil extend, heterogeneously, from the southern part of the Santos Basin to the northern section of the Campos Basin, an area of approximately 800 km in length by 200 km in width, in deep or ultra-deep waters.

The Hub of the Pre-Salt Layer within the Santos Basin comprises the remaining areas of blocks BM -S-8, BM -S-9, BM -S-10, BM -S-11, BM -S-21, BM -S-22 and BM -S-24, and is located about 300 km from the coast of Rio de Janeiro and some 350 km from the coast of São Paulo, in a depth of water that ranges from 1,900 to 2,400 meters.

Evaluation plans for all the blocks, with the exception of block BM -S-24 (Júpiter), have been approved by the ANP . They provide for the drilling of 22 appraisal wells within the area over the next five years, and the performing of seven extended well tests (EWT ).

In the Santos Basin pre-salt layer, where Petrobras has a total stake of around 60% in the areas allocated, the expectation is that oil production will attain the milestone of 1 million bpd in 2017, a mere 12 years after the Parati discovery, made in block BM -S-10 in 2005.

Pre-salt layer discoveries in the north of the Campos Basin (Parque das Baleias), where Petrobras has a 100% stake in the allocations to date, confirm the potential of the whole extent of the pre-salt layer in Brazil’s southern and southeastern basins.

Due to its magnitude, and the impact on the company’s various businesses, the Santos Basin pre-salt hub requires that the devising of the development strategies and the planning and execution of the projects be conducted in an integrated manner, involving all areas of the company.

To coordinate this complex challenge, in 2008, Petrobras set up an executive management section within the Exploration & Production area, devoted to planning and defining the development strategy for this new exploration frontier. Moreover, a Master Plan for the Integrated Development of the Pre-Salt Area (Plansal) was drawn up, in order to realize all the potential benefits to be derived from long term planning and an integrated vision.

The main objective of Plansal is to identify and give priority to a set of strategies that are to be implemented in the affected areas, taking into consideration the initial knowledge of the characteristics of the recently discovered oil deposits and the oil industry’s situation in Brazil, particularly in regard to regulatory and market factors and the supply of critical resources.

Notable among the opportunities created by the development of the pre-salt layer are:

  • The generation of knowledge, technological programs and partnerships with universities and research institutions, ›› thereby reinforcing the company’s integration with the Brazilian and international technical community;
  • Enhanced employment opportunities, with the development of specialized manpower;
  • New solutions for the company’s units, systems and production centers (equipment and logistics);
  • The development of the industrial base and expansion of business in the engineering, heavy equipment, shipbuilding and related sectors.

OFFSHORE AND ONSHORE AREAS

In 2008, Petrobras reported to the ANP (National Agency of Petroleum, Natural Gas and Biofuels) the commercial viability of 18 discoveries, 17 of them onshore and one offshore. All the onshore areas were incorporated within neighboring fields that were already producing. Of these, three are located in the Potiguar Basin, five are in Sergipe-Alagoas Basin, one is in the Recôncavo region and six are in the Espírito Santo Basin. The company also declared the commercial viability of the Corruíra field, in the Espírito Santo Basin, and the Mutum field, in the Sergipe-Alagoas Basin. Offshore, the commercial viability was declared for a gas field in the Camarupim Norte area, which is a continuation of the Camarupim field, situated in the northern part of the Espírito Santo Basin.

NEW EXPLORATION BLOCKS

At the ANP’s tenth bidding round, held in December 2008, Petrobras acquired 27 exploration blocks, representing 50% of the 54 available blocks, covering a total area of 20.3 thousand km2. The winning bids made by the company and its partners amounted to R$ 56.7 million, of which Petrobras’ share came to R$ 40 million. The company is the operator in 22 of those 27 blocks, having exclusive rights in 17 of them, while operating in partnership with other companies in the other five. In the remaining 5 blocks, the operations are to be carried out by its partners.

With the various acquisitions and areas surrendered during 2008, the company’s portfolio of exploratory concessions comprises 265 blocks, covering a total area of 142.3 thousand km2. In addition, there are another 35 areas, covering 12.7 thousand km2, where the discoveries are under evaluation, giving Petrobras a total exploration area of 155 thousand km2.

PROVEN RESERVES

Petrobras’ proven reserves of oil, condensate and natural gas in Brazil, at the end of 2008, amounted to 14.09 billion boe, according to ANP/SPE criteria, representing a 1.2% increase over the previous year’s volume. During 2008, a total of 920 million boe was added to the reserves, while the production level was 747 million boe, yielding a net increase of 173 million boe to the company’s proven reserves. As a result, the Reserve Replacement Index remained at 123%, meaning that for every barrel of oil equivalent produced during the year, the company added 1.23 barrels to its reserves. Meanwhile, the reserves/ production ratio declined from 19.6 to 18.9 years.

The appropriation of amounts from existing fields during 2008, through projects to augment the recovery rate, contributed to this increase in the proven reserves, as did new discoveries in exploration blocks that were then incorporated within existing production fields. The pre-salt layer in the Espírito Santo Basin alone added another 128 million boe to our proven reserves.

FUTURE PROJECTS

The discoveries in the pre-salt layer will receive special attention, starting with the extended well test (EWT) of the Tupi field, in 2009, using the FPSO BW Cidade de São Vicente, a vessel with a production capacity of 30 thousand bpd.

In 2009, production should begin at four new systems in the Campos Basin:

  • Marlim Sul field, Module 2 — Production start-up of the P-51 platform, the first to be entirely built in Brazil. Involving the investment of more than US$ 1 billion, it has the capacity to produce 180 thousand bpd of oil and 6 million m3/day of natural gas;
  • Marlim Leste field — The FPSO Cidade de Niterói is scheduled to come into operation, with the capacity to produce 100 thousand bpd of oil and 3.5 million m3/day of natural gas;
  • Campo de Frade — The FPSO de Frade is scheduled to come into operation, with the capacity to produce 100 thousand bpd of oil and 2.5 million m3/day of natural gas. It is operated by Chevron and Petrobras has a 30% stake;
  • Parque das Conchas (comprising the Ostra, Argonauta and Abalone fields) — The FPSO Espírito Santo is scheduled to begin production, with the capacity of 100 thousand bpd of oil and 1.4 million m3/day of natural gas. It is operated by Shell and Petrobras has a 35% stake.

The company’s production of natural gas will also grow, through a variety of projects for the production of nonassociated gas, three of which are part of Plangás: the FPSO Cidade de São Mateus, in the Camarupim field (Espírito Santo Basin), with a production capacity of 10 million m3/day; connection of a well in the Canapu field to the FPSO Cidade de Vitória (Espírito Santo Basin), with a capacity of 2 million m3/day; and connection of a well in the Lagosta field to the Merluza platform (Santos Basin), with a capacity of 1.8 million m3/day.

Also in 2009, the production capacity of the company’s platform in the Manati field, in Bahia, will be augmented to 8 million m3/day of natural gas.