Costs, technical hurdles snarl Brazil sub-salt giant

OREANDA-NEWS. September 02, 2016. Brazil's state-controlled Petrobras and its partners in the giant Libra sub-salt field are working to develop technology to cut costs and forestall production bottlenecks.

In 2013, Petrobras and consortium partners Shell, Total and Chinese state-owned companies CNOOC and CNPC paid a R15bn (\\$6.9bn) signing bonus for the Libra production-sharing agreement. The offshore Santos basin field is estimated to hold 8bn-12bn bl of 27?API crude.

Yesterday at a local industry conference, Shell's Keith Lewis, the applied technology leader for Libra now on secondment at Petrobras, laid out the technical challenges, including high sulfur content, a high gas-oil ratio, and the presence of igneous rock in the reservoir.

Lewis said the partners are working on a special floating production, storage and offloading (FPSO) model, but the gas treatment units needed could cover 60-65pc of the topside, a weight concern for existing FPSO models.

The costs of the technology needed to reach peak production of 1.4mn b/d, tentatively forecast for the middle of the next decade, will ultimately lower the breakeven price for the field, but not before intense investment.

Lewis says the process so far has been slow, stalling decisions needed to capture the value of the 35-year lease.

Neither Petrobras nor Shell would comment on the breakeven price for Libra. Petrobras has touted a reduction in sub-salt extraction costs to around \\$8/bl, keeping it competitive at today?s lower oil prices.

Earlier this year, Petrobras established a team dedicated to working on Libra, part of a broader corporate restructuring.

Fernando Borges, executive manager of the Libra team, says the group has identified 35 proposals, such as water-alternating-gas (WAG) injection and pipeline alternatives, that could help to shave \\$10/bl off the breakeven in the first phase of production, scheduled for early 2017. The group is working on another 115 for the permanent production phase in 2020.

The 50,000 b/d FPSO Libra Pioneer is now 85pc complete and should start operations late in the second quarter of 2017, at least three months later than originally planned, industry officials tell Argus. Brazilian conglomerate Odebrecht and its Canadian partner Teekay Offshore are building the \\$1bn vessel at the Jurong shipyard in Singapore.

Rigid local content rules are another challenge for the Libra team. The Brazilian government has indicated it could ease the rules as early as this year, and the Brazilian oil regulator ANP has recently granted a landmark waiver for non-compliance fines. With an increasing number of construction projects being shipped abroad, a result of the fallout from the massive corruption scandal at Petrobras, more companies are expected to request waivers in coming years.

Petrobras is limiting almost all of its 2016 exploration spending to Libra, where the consortium has drilled seven wells and has another two under evaluation.

Brazil's congress is now considering a proposal that would allow companies other than Petrobras operate sub-salt assets. The current rules require Petrobras to hold a minimum 30pc stake.

Petrobras holds a 40pc stake in Libra. Shell and Total each hold a 20pc stake and CNOOC and CNPC each hold 10pc.

Petrobras-operated sub-salt oil production reached a record 1.06mn b/d in July, a 6pc increase over June and up 32pc over July 2015.

Petrobras' portion of production is around 70pc, or 742,000 b/d in July, corresponding to 33pc of the company's total domestic oil production. That number is expected to exceed 50pc in the coming years as output from the aging Campos basin wanes and the company adds more sub-salt platforms in the Santos basin.