In the July 6 edition of its DW Monday report, Douglas-Westwood (DW) commented that Brazil is facing deep upstream challenges. While the adoption and deployment of deepwater technology has enabled Petrobras to build reserves of some 16 billion barrels of oil, converting these reserves to production has proved challenging.
DW says that the long-delayed “2015-2019 Business and Management Plan” released last week is a reflection of the new reality for Petrobras. With collapsed oil prices and unfavorable exchange rates, Petrobras has slashed its expenditure plans by 40% from the plans announced a year ago. Recognizing the upstream challenges, the company is now allocating 84% of its budget to exploration and production (E&P) compared to 70% in the previous plan. The biggest cut goes to its refining and supply sector, which has seen its budget reduced by 67% compared to last year's plan.
Production decline from existing fields is a huge challenge with around 200,000 barrels per day of capacity eroded each year. Brazil’s huge deepwater potential remains constrained with Petrobras having to revise its production target for 2020, which now forecasts domestic oil output to increase to 2.8 million barrels per day – 40% lower than its projection 12 months ago.
DW predicts that, over the forecast period, Brazil will need to drill around 300 development wells in deep water in order to sustain and reach its production target. However, of the 29 new rigs being built by the company, many are under threat from either funding problems or yards withdrawing from the contracts. DW had already taken a conservative position on Brazil and the cut in production target now brings in line Petrobras’ expectations and DW’s own forecast. The scale and importance of Brazil in the overall offshore sector means that the impact of the latest spending revisions will be felt throughout the oilfield services industry supply chain.