Choppier waters in Latin America
A beacon for the offshore industry in recent years, the region is now suffering through the downturn
THE REGION’s offshore drilling has crashed with the oil price. Financial woes at Petrobras and Brazil’s broader political malaise have taken its toll on the country’s vaunted pre-salt industry. Mexico’s offshore may be on the cusp of a renaissance with its first deep-water bid round on the horizon, but for now Pemex is paring back as the company’s finances sink into the morass. Colombia’s offshore ambitions sank before they had a chance to take off.
The rig count tells the story. The number working off Latin America’s 50,000km of coastline has fallen to just 40, the lowest level since 2000, according to Baker Hughes, a service firm. Brazil has borne the brunt of the decline. In mid-March just 13 rigs were drilling offshore, down from around 50 during the peak of sub-salt activity in 2011. For all the investment Petrobras and the government have ploughed into the sector, more land rigs are now drilling in the country than offshore. Mexico too has seen a sharp fall, down by half over the past year to 17.
Cash out of hand
Budget cuts explain the slump. Petrobras, struggling with nearly $140bn in debt, has slashed spending repeatedly over the past 18 months. Its latest plan calls for investment of $98.4bn from 2015 through 2019. During the bumper years, those spending plans typically topped $200bn. The company has tried to shelter its pre-salt budget from the axe, but some retrenchment is inevitable. Nearly a dozen offshore projects have been shelved or cancelled.
Pemex racked up a staggering loss of around $30bn in 2015. That forced the Mexican government to step in with a $4.2bn rescue package in April. But the financial help is contingent on, among other austerity measures, a $5.5bn spending cut this year – around 10% of overall capital expenditures. That will hit offshore production, which has fallen by more than 150,000 barrels a day since early 2014 to 1.72m b/d.
Colombia’s state-owned Ecopetrol has been forced to shelve its offshore exploration campaign until prices recover.
Some bright spots are visible in the gloom. Petrobras’s pre-salt production has topped 1m b/d – hitting a record 1.091m b/d in February, a figure that should keep rising as the company bears the fruits of pre-crash investments. The Lula Central and Lapa pre-salt projects – both capable of producing 150,000 b/d – are due to start producing later this year.
The region has also seen some successful frontier exploration. In Guyana, ExxonMobil is pressing ahead with the appraisal of its Liza discovery, potentially putting Guyana on the map of oil producers.
In Uruguay, a recent flurry of deals has seen Statoil take stakes in a pair of blocks. In late March, a Total-led consortium started drilling the country’s first-ever deep-water well at the Raya prospect.
This article is part of an in-depth series on offshore production. Next article: BHP Billiton pushes on in the Caribbean.