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Heading south

Outside Brazil, Latin American output is on its way down

After years of strong gains, Latin America’s oil production will slip by about 1%, or around 120,000 barrels a day in 2016.

State oil companies, which account for the vast majority of production, piled on debt in the boom years, making the downturn painful. Capital spending will fall by around 25% this year, marking the second straight year of deep spending cuts. Those cuts are reflected in the plunging rig count, which has dropped by 40% since September 2014. Colombia and Mexico will lead production declines, while new pre-salt projects in Brazil will make it the only Latin American country that will see output rise.

While Brazil’s oil industry is going through a corruption scandal and deep financial pain, production continues to rise. Pre-salt deep-water production is growing, and the country was producing 0.875m b/d from 52 pre-salt wells in December 2015. Key projects to watch for short-term production growth will be the Lula Alto and Central fields and the Lapa field. The projects are needed to offset declines from mature Campos Basin offshore fields. Assuming the three new pre-salt projects see first oil in 2016, total Brazilian crude output should rise by close to 3%, to 2.6m b/d by the year’s end.

Mexico is likely to see the largest decline. State oil company Pemex posted a Q3 loss of $10bn with plans to cut 2016 spending by 20% to $17bn. It has long struggled with falling output, which will continue as investment slips. The reform process will eventually see private money flow into oilfields, helping to reverse the decline, but 2016 will be a difficult year. We expect crude production to fall by around 100,000 b/d from the end of 2015, to finish 2016 at 2.175m b/d.

Colombia too is likely to see output slide. The country’s heavy oilfields need constant investment and drilling to keep production growing. The number of rigs has plunged 83%, from 48 in November 2014 to just eight in January this year, according to Baker Hughes. Exploration spending is expected to be around $0.7bn, half what it was in 2014, according to industry group ACP. We expect output to fall by around 50,000 b/d to around 0.95m b/d.

In Argentina, the election of president Mauricio Macri, seen as far more business friendly than his predecessor, has raised hopes of an improved investment climate. But there will be little evidence of that in the 2016 production figures. Shale development in the Vaca Muerta will continue to inch along, led by state oil producer YPF, but the vast majority of production still comes from mature fields that are in inexorable decline.

Venezuela’s state oil company PdV has taken pragmatic steps recently to encourage more foreign investment in the Orinoco heavy oilfields. But given the country’s economic crisis, it will be difficult to mount much of a recovery in oil output in 2016.

 

This article is part of an in-depth series on regional production forecasts. Next article: Asia past its peak.

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