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Petrobras shuffles pre-salt plans

Long-term production project delayed as economic malaise upends upstream timeline

Brazilian state-owned oil company Petrobras will slow its pre-salt production plans following lingering market volatility and surging global Covid-19 infections. Startup at the producer’s offshore Parque das Baleias project in the Campos basin will be pushed back a full year into 2024.

The project was initially included as part of the producer’s long-term strategy plan for the pre-salt. Three floating production, storage and offloading (FPSO) vessels were scheduled to start up in the region in 2023, including at the Marlim and Mero fields. Production capacity was projected to increase by at least 250,000bl/d.

But this year’s economic downturn has led Petrobras to cut all unnecessary outlay. The firm slashed capex by $14-24bn across the first half of 2020. “The impact of Covid-19 on the oil market has severely reduced Petrobras’ expected revenue for the year,” says Ruaraidh Montgomery, director at upstream research firm Welligence Energy Analytics. “Given the company’s ongoing focus on strengthening its balance sheet, delaying the contract award for this new [Parque das Baleias] FPSO delays cash outflow, plus Petrobras will perhaps be hoping for a lower price in the new tender.”

Over the horizon

Petrobras’ pre-salt oil production has soared over the past year, and the company has much more set to arrive over the next two years. Output in the region has increased by 31pc in 2020, mainly due to a new FPSO at the Atapu field and production ramp-up at the giant Buzios field, both in the Santos basin.

“The entire 2020-24 business plan will be under review, with every new project stress-tested under a lower oil price outlook” Montgomery, Welligence

Petrobras has two more FPSOs set to begin production next year. A unit at the Sepia field will add 180,000bl/d in capacity, and a second at the Mero field will boost output by another 180,000bl/d.

In 2022, Petrobras expects to add a further three FPSOs in the pre-salt. One of these is scheduled for the Buzios field, which already has four such units and is the company’s main driver of pre-salt production growth. The field achieved record output figures earlier this year, and production will only accelerate as more FPSOs reach startup. Petrobras is ultimately targeting 12 FPSOs at Buzios over the next decade, which will at least triple production to more than 2mn bl/d.

Change of approach

With so much output already booked and paid for, Petrobras can afford to push back some of its long-term projects until the oil price improves. “The entire 2020-24 business plan will be under review, with every new project stress-tested under a lower oil price outlook,” says Montgomery. “Additional project delays, on top of the Parque das Baleias announcement, can be expected.”

The same is true of other large Brazilian upstream projects. Norwegian firm Equinor’s expansion of its Peregrino field in the Campos basin also suffered delays, and startup is likely to be pushed back into 2021.

Montgomery adds that the economic downturn may also result in Petrobras adopting a more aggressive divestment strategy to compensate. Rebalancing its portfolio has been a key component of the company’s plan to focus on low-cost pre-salt barrels and pay down debt.

This year, Petrobras has tried to offload remaining stakes in domestic gas pipelines, thermal power plants, refining capacity and onshore and offshore fields. But progress has been slowed by the depressed oil price and court injunctions on some sales.

>2mn bl/d – Buzios projected production

Petrobras’ recent decision to offload fields in the pre-salt region, though, points to a widening of the core divestment plan. The company has issued tenders to auction off its deepwater Albacora and Albacora Leste fields in the Campos basin.

The adjacent assets offer some of the largest post-salt assets in the Campos and opportunities to explore the pre-salt. Unlike some of the other non-core asset sales, these fields are in a region with one of the lowest breakevens in the world. The sales are likely to attract strong interest and could signal more auctions in the region if the wider divestment schedule remains sluggish.  

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