Shell positioned for sub-salt expansion in Brazil
OREANDA-NEWS. After finalizing its $53bn acquisition of the UK's BG Group, Shell is poised to expand its footprint in Brazil's sub-salt play, Shell's chief executive Ben van Beurden told reporters in Rio de Janeiro today.
The BG acquisition already positions Shell as the second largest oil producer in Brazil, behind state-controlled Petrobras, and the largest private-sector producer of sub-salt crude.
Van Beurden sees potential benefit in a proposed change to existing legislation that requires Petrobras to hold a 30pc operating stake in all sub-salt projects, a reform scheduled for a Brazilian senate vote this week.
"The decision is for [Brazilians] to take. But it does make sense to be more relaxed in finding other players, competent deepwater players, not too many in the world but there are a few, inviting them to come in and be operators and large investors...It's about spreading risk, bringing in more capability and more investment…if it happens, I'm sure we would be ready to step in and play a role," Van Beurden said.
Shell is partnered with Petrobras in the 8bn-12bn bl Libra block. With the BG acquisition, the European major has a working interest in most of the major sub-salt discoveries in the Santos basin. Libra is expected to start producing 27°API crude in first quarter 2017.
But lower oil prices have called sub-salt economics into question. Last year, Petrobras said the break-even price was around $45/bl, while government officials in Brazil have said $55/bl. Petrobras has declined to give an updated figure, but says it has drastically cut extraction costs for ultra-deepwater fields and that projects remain competitive.
"I will expect the break-even price for sub-salt in Brazil to be very favorable, somewhere near the price range we expect to see this year. But the lower oil prices go, the lower the costs. The break-even price will go down with lower oil prices. The world will continue to need to invest more than $1 trillion a year just to stand still. The companies that are going to be the winners in the market are the ones that have the best acreage, best cost position, and best technology. I think we can safely say that certainly in the deepwater we have that. We believe we are in a strong, winning position."
Van Beurden says projects such as Libra, which could take three to four decades to develop, are still attractive with costs on the favorable end of the curve.
He describes the company?s Brazilian sub-salt investments "very resilient and very robust."
A widespread corruption scandal involving numerous key Brazilian suppliers has weighed on Brazil's oil industry for more than a year and caused upstream delays. Van Beurden says there is no indication BG is facing any legal risk from ongoing investigations, but acknowledged the disruption of the local supply chain could delay project development.
"It could well be that the supply chain could slow down and that the rate of development could be lower. Some of the value that could be there could be affected," he said.
BG's Brazil production was 146,000 b/d of oil equivalent in 2015. Combined with Shell?s production, total output could reach 550,000 boe/d by the end of the decade, Shell has said.
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