Pre-salt promise buoys bustling market
  from: Offshore Engineer
  by: Jennifer Pallanich
  Wednesday, June 18, 2008

Brazil’s deepwater areas hold a petroleum promise that the rest of the world is eyeing hungrily. The elephant Tupi find, paired with the speculation surrounding Carioca as being a gargantuan discovery, has buoyed an already bustling market in this corner of the deepwater Golden Triangle. Brazil’s waters already host a number of rigs and an influx of more is expected by 2010. Jennifer Pallanich reports from Rio and Houston.

The promise of Brazil’s pre-salt play remains center stage in the world’s energy arena, and the player that knows the most about it – Petrobras – is saying precious little. An assortment of employees from the oil company have spoken at various events over the last few months, divulging little about the one thing most everybody wants to know: quantity.

‘We don’t know,’ was the verdict of Jose Sergio Gabrielli de Azevedo, Petrobras CEO and president, at an OTC press conference in Houston last month. ‘We have a suspicion that we have a huge volume of hydrocarbons in the area.’ Pressed further, he would say only: ‘You cannot know the color of the eyes of the baby before it’s born.’

Petrobras has drilled five wells in the pre-salt area so far, he said, and the company has different knowledge about the reservoirs in the three blocks.

‘Currently we are working three blocks, BM-S-11, Tupi; BM-S-9, Carioca; and BMS- 24, Jupiter,’ said Almir Guilherme Barbassa, Petrobras CFO, during a recent analyst conference call. ‘We have made an important decision at the board level to fast track the extended well test and the pilot system for Tupi.’

That decision includes chartering from BW Offshore the FPSO Peace to start testing in March 2009. The contract is for a firm period of 10 years with a five-year option. BW Offshore said it will upgrade Peace to meet Petrobras and field-specific requirements. The FPSO will be turret moored in water depths of up to 2500m. Peace has a processing capacity of 40,000b/d and a storage capacity of 1 million barrels, according to BW Offshore.

‘During the testing, which will last through much of 2009, we will drill three wells and test each individually,’ Barbassa said. ‘This will improve our understanding, not only of the reservoir characteristics and the well productivity but also the optimal well design.’

Petrobras has also created a pre-salt executive management office to coordinate assessment plans and the production pilot. For the pilot system, Barbassa said, Petrobras is in the market for a 100,000b/d unit to start in December 2010.

As of mid-May, three rigs were drilling the pre-salt cluster of prospects.

‘This is not enough to meet our drilling needs for the testing and pilot phase for Tupi and the continued further exploratory work in the pre-salt,’ Barbassa said.

Petrobras has contracted a further three rigs – West Eminence, West Taurus and West Orion – from Seadrill for additional pre-salt drilling. While all are under six-year contracts, the sixth-generation West Eminence and fifth-generation West Taurus are slated to begin work next year with fifth-generation West Orion scheduled to begin drilling in 2010.

Even that may not be enough, Gabrielli de Azevedo acknowledged. ‘We have to think of non-traditional ways to get those critical resources,’ he said.

The Tupi challenge

Flavio Vianna, Petrobras’ general manager for the southern cone, told the recent Latin Upstream conference in Rio that the company has many challenges to overcome with Tupi.

Petrobras has acknowledged a host of technological challenges associated with developing and producing its pre-salt finds. Reservoir issues include secondary recovery, the feasibility of water-gas injection and geomechanics of surrounding rocks with depletion.Well engineering issues include deviation of wells into salt zone, hydraulic fracturing in horizontal wells and slow penetration into the reservoir. Flow assurance issues include paraffin deposits in long pipes as well as hydrate and scale control. Associated gas presents another issue. FPU challenges include mooring in 2200m, platform access to wells and interaction with the riser system. Subsea engineering of risers in 2200m and contending with issues like CO₂ and high pressure are other challenges.

Antonio Jose Rezende de Castro, consul general in Brazil’s Consulate General office in Houston, declared in Houston recently that ‘Tupi should transform Brazil from a self-sufficient producer into a major crude exporter.’

The outside world has plenty to say about what the finds could mean for the industry.

‘Jupiter seems as challenging as Tupi,’ says Ricardo Aboud, then BJ Services’ business development manager for Latin America. ‘Every area has its own number of challenges.’

Jose Camargo, president of StatoilHydro’s Brazilian unit, believes Tupi has helped Brazil enter into a new era: ‘Brazil has the resources.’

‘That’s going to build up a tremendous legacy, not just for Brazil, but for the industry as a whole,’ says Weatherford’s Jim Foster, country manager for Brazil.

Jose Felix Garcia, executive secretary of ARPEL, the regional association of oil and natural gas companies in Latin America and the Carribean, wonders if the Tupi find alone could transform Brazil into the energy security source for the southern cone of the continent. ‘This creates an imbalance,’ Garcia says of the mammoth find.

Petrobras is moving ahead with exploration, development and production efforts at other locations in the Brazilian waters. The company recently awarded Petroleum Geo-Services a $251 million contract for high density 4D (HD4D) marine seismic survey campaign over the Campos, Santos and Espirito Santo basins. The award covers a firm program of five surveys, totaling 4945km2, and an alternative program for additional data acquisition. The surveys are scheduled to begin in October 2008 using PGS’ Ramform Sovereign, which was christened in Norway earlier this year.

With the excitement surrounding the Petrobras finds, it is still worth mentioning developments in progress other operators are carrying out in Brazilian waters: Chevron’s Frade, Shell’s Shell Park, what will soon be StatoilHydro’s Peregrino, and Devon’s already onstream Polvo.

Chevron is enthusiastic about Latin American prospects in general and Brazil in particular, with the Frade investment offshore Brazil backing the supermajor’s commitment to the area, said Chevron Brasil president Daniel Rocha during Latin Upstream. ‘It’s quite a sizeable development,’ Rocha added. A converted FPSO with 100,000b/d capacity will produce the field, which is due onstream next year.

Max Brouwers, Shell’s exploration manager for Brazil, sees the country as a long-term energy heartland. The supermajor, already developing BC-10, aka Shell Park (OE March), to go onstream by the turn of the decade, has also declared the BS-4 field as commercial.

‘All activities are progressing exactly on schedule,’ Brouwers said.

The Anadarko-operated Peregrino field is changing hands after StatoilHydro made Anadarko an offer it couldn’t refuse for its share of the field. The deal will make the Norwegian company the 100% operator of the field when it closes. Camargo expects the deal to be ‘a transforming acquisition for StatoilHydro.’

Peregrino is thought to hold 500 million barrels or more of reserves. It’s due onstream in 2010, producing 100,000b/d of 14°API oil. According to Camargo, based on 3D seismic from 2007, StatoilHydro believes the field could even hold up to 700 million barrels.

‘Anadarko hasn’t changed our growth strategy in Brazil,’ Kurt McCaslin, president of Anadarko Petroleo, told the Latin Upstream conference. ‘What has changed is we have one key asset that we’re in the process of selling for a very good price.’

Anadarko plans to drill up to four subsalt tests this year off Brazil, leveraging its experience from drilling over 40 deepwater subsalt wells in the Gulf of Mexico. Subsalt success, McCaslin said, stems from starting with good seismic images below the salt, solid stratigraphic and attribute analysis and drilling.

‘In today’s market, you cannot successfully play in deepwater without a rig,’ McCaslin said. The Texas-based independent has nine rigs under contract in the Gulf of Mexico and intends to move the Deepwater Millennium from the Gulf to Brazil soon. That vessel, under contract through 2013, can work in water depths to 10,000ft.

Devon last year brought onstream its first field offshore Brazil at Polvo (OE June 2007) and has contracted the Deepwater Discovery to enter Brazilian waters next January.

‘Our intention is to keep it in Brazil during those five years,’ said Murilo Marroquim, president of Devon Energy, Brazil, during Latin Upstream. ‘Our focus in Brazil is deepwater, for sure, most of it high potential blocks.’ Devon will also consider some frontier blocks, he added.

Another round, please

Round 10 is still being planned. Agencia Nacional do Petroleo (ANP) director Nelson Narciso said at Latin Upstream the round will likely follow the format of previous rounds by offering blocks in mature, new and high potential basins.

‘We have a bunch of areas to be considered for Round 10,’ Narciso said at a later event in Houston, adding, ‘everything related to the pre-salt area is on hold.’

ANP has completed its studies of the new blocks proposed for offer and was nearly ready to send those to the ministry of mines & energy as of early May but was not sure when it would receive a goahead. Additionally, while the government take has stood at 60% since 2002, Narciso said, ‘we have no doubt we need to review that.’

The high bonuses offered by companies in Round 9 may also lead the ANP to raise the minimum bonus amount for future bid rounds, John Forman, director of J Forman Consultoria, told Latin Upstream.

‘You’ve got to be prepared to pay more in the future,’ Forman said.

Wanted: experience, resources

The explosion of work in Brazil has left companies scrambling for personnel.

‘The main challenge for us is adding experienced people,’ Mauricio Figueiredo, vice president of Baker Hughes do Brasil, says. ‘The most difficult task we had was building the team to properly support the operations.’

He says the service company focused on bringing in qualified and experienced people.

‘We didn’t want just anybody,’ Figueiredo says.

The Brazilian operating arm of Baker Hughes had the benefit of a company that wanted to see its regional components do well: Baker Hughes employees from around the globe helped staff the Brazilian efforts, Figueiredo notes.

Subsea 7 is also investing heavily in training and development. ‘Our biggest challenge at the end of the year will be to serve two big pipelaying vessels at the same time, which is the first time we’re going to do that,’ says Victor Bonfim, vice president, Brazil, for Subsea 7. ‘It requires a huge amount of engineering effort and a huge amount of project management effort.’

A shortage of available subsea engineers compounds the situation, he says, adding: ‘All the subsea engineers are employed, by ourselves, by our competitors.’ Subsea 7 is looking to parallel industries to attract engineers. He says the company has hired onequarter of its workforce in the last year.

Bonfim says he hopes companies can work together with less duplication of efforts in the future, especially given the shortage of engineers. Historically, he adds, operating companies and contractors have failed to work together. But working together, he argues, would eliminate or decrease duplicate work and speed up work without compromising quality.

‘This might be beneficial for both parties,’ Bonfim says. ‘It’s more like an attitude thing.’ He’s optimistic his hope will come to fruition: ‘Optimization will come from the need.’

He questions the sustainability of the industry’s growth in light of the scramble for people, equipment, and other resources. ‘We cannot continue to grow at that pace,’ Bonfim says. ‘This is not a Subsea 7-specific issue. It’s across the industry.

‘What is the industry capability to actually execute all this work’ in relation to the whole supply chain, Bonfim wonders.

The whole industry is ‘in shortage mode’ with supplies, equipment and personnel, Terry Mason, M-I Drilling Fluids do Brasil’s regional manager, business development SLA Brazil IOC manager, says.

‘That impacts an outpost more than in the US.’

M-I Swaco do Brasil business development manager Luciano da Costa Elias notes the tight rig market means steady work levels rather than jumps in demand for service companies. New rigs expected to arrive off Brazil, he adds, won’t likely affect the market as much as they could.

‘Activities are going to increase, but this is highly dependent on rig availability,’ Mason says. ‘This is a hot market.’

Beyond operating

Subsea 7 is only one of the companies operating in Brazil that has shown growth in revenue. This year, however, is different for the company’s Brazilian division. As that division tallies its receipts over the course of the year, it will ring up revenues from two sizeable projects – Peregrino and BC-10 – that were not Petrobras work.

‘Forty to fifty percent of our revenue this year will be from non-Petrobras business, which is a change,’ Bonfim says. The Brazilian giant usually accounts for 80% of the company’s regional earnings, he adds. For the last five years, Subsea 7’s Brazilian operations have seen 50% growth year over year, he says. Weatherford’s Brazil unit has seen an increase of 33% from 2005 to 2006 and 37% from 2006 to 2007. About 96% of Weatherford’s Brazil revenues come from work with Petrobras, Foster says.

‘We’re going in at the same growth rate for 2008,’ Foster says. ‘That’s pretty significant growth.’

Weatherford’s Brazil focus is different from the company’s units in other parts of the world, Foster says. Part of that reason, he says, is because Petrobras can do much of the work traditionally supplied by service companies. In response,Weatherford had to find areas where it could use aspects of its traditional services but packaged differently to generate work. It’s an approach other units of Weatherford are considering taking, he adds. ‘You’re outside the box all the time.’

For instance, the service company performs drill pipe riser intervention in Brazil and has about $300 million in longterm contracts for the work over the next three to five years. This work resulted from discussions between Petrobras and Weatherford regarding drill pipe riser intervention, a case of what Foster calls, ‘right place, right time and right fit’.

Weatherford also counts completion riser maintenance off Brazil as a nontraditional revenue generator. ‘We had all the equipment to do it,’ Foster says. For these jobs,Weatherford does the machining, repairs and maintenance for Petrobras-owned assets. ‘We’ve made our footprint in the cement here.’

BJ Services’ Brazil revenues have doubled over the past four or five years, Aboud says. Much of that comes down to the number of jobs available and projects going on.

‘This is good. This is excellent for business. You have more people working. You have more possibility of winning bids and contracts,’ Aboud says of the large amount of work going on offshore Brazil. ‘The whole environment, it couldn’t be better.’

The combination of opening Brazil up to foreign operators and Petrobras’ expansion around the globe has given Petrobras a different perspective, Aboud says.

‘With this new geographic presence, they started to open their minds. That brings a new flavor of mindset within Petrobras.’ That change: being more open to risk, he says.

M-I Swaco has set up its Brazilian division to cater to different types of customers: Petrobras, the IOCs and independents. Having a separate department to deal with IOCs has been key for the company, Mason says. ‘I don’t know how you could work both markets at once because there’s so much difference between the two.’

M-I Swaco has succeeded in Brazil, Mason says, because it has invested in its Brazilian facilities: mud plants in Rio de Janeiro and Vitoria and one opening in Vilavelha by the end of 2009, and five other bases located along the coast.

‘We’ve made investments [in Brazil]. We’ve plowed in, in the last three years, $30 million.We’re reinvesting our profits,’ Mason says. ‘We had the courage to invest.’

Tupi and other discoveries are expected to open up a new market for Cameron, said Mauricio D’Andrea, sales engineer. ‘Petrobras will need a lot of equipment to produce it,’ D’Andrea says. ‘The next five to ten years will be very exciting to us.’

Cameron is hoping its new all-electric subsea tree, which Total has deployed in the Dutch North Sea (OE February) will garner the attention of Petrobras. D’Andrea says the electric tree is quick and reliable, acting as quickly as a light switch, compared to the three- to fourminute lag time with hydraulics or the one- to two-minute delay with MUX.

‘Things are changing,’ Petrobras’ Vianna said. ‘The price of oil has changed the dynamic of the energy industry.’ As examples, he cited increased capital costs and increased government takes.

‘Although prices are high, it’s not completely paradise,’ he added.

It’s a given that all staff, particular the subsea engineer variety, are hard to come by. It’s a given that rigs are booked far into the future. It’s a given that anything made of steel is going to require a long lead time before delivery. It’s a given that everything costs more now than it did in years past. None of these seems to dampen excitement about the Brazilian petroleum landscape. OE

The drillers descend

In late May, Petrobras also decided it would hire 40 drillships and semis for deepwater and ultra-deepwater operations. Under the Petrobras plan, the 40 units will be constructed and delivered through 2017, with a priority on having the rigs fabricated in Brazil. Also, Petrobras has issued an invitation to tender for 24 vessels to support E&P activities and also expects bidding for 122 more vessels over the next six years. Petrobras says it expects all 146 of the support vessels to be built in Brazil.

Technology on the edge

Brazil’s energy industry is living at the edge of technology frontiers: deepwater, pre-salt, heavy oil, HP/HT and deep wells to name a few.Work in depths of 3000m of water is expected to be tendered this year.

‘That’s going to test the complete technical edge of the technology. It’s never been done,’ Weatherford’s Jim Foster, country manager for Brazil, says of drill pipe riser intervention work expected to be tendered this year.

As far as new technology, Victor Bonfim, Subsea 7’s vice president, Brazil, expects to see changes come with risers, especially related to deep HPHT wells, and with subsea processing facilities. ‘Every project has its own challenges. There’s always something different, and the technology boundary is always pushed a bit,’ he says. One such project is the HPHT Mexilhao field, which features a 12in import line that was to be installed in 2Q 2008. ‘This is a challenging project by itself because it’s an HPHT field,’ Bonfim said shortly before the project was slated to begin.

Subsea 7 was also due to lay 12in export line through the Espirito Santo basin, where the sea bottom profile has up to 45° angles in some places. ‘Every time you lay pipe in this area, you are subject to problems because it’s very steep,’ he says.

‘All sorts of challenges are concentrated in one project’ with Shell’s BC-10, Bonfim says, alluding to the lazy wave SCRs, which have critical welding issues. This is the first application of lazy wave SCRs off Brazil, Bonfim says, and as such a lot of engineering effort has gone into the project, with 18 months of planning already logged. ‘There’s a huge team working on it.’

One technology that Baker Hughes Inteq is doing well is providing real time images and information through its Answers while Drilling (AwD) service, says Mauricio Figueiredo, vice president of Baker Hughes do Brasil. Through AwD, he says, it’s not necessary to wait until the well is finished to log it (OE January).

According to Figueiredo, the real-time requirement Petrobras laid out was a minimum of six bits per second. ‘We delivered 24 bits per second, which is four times what they said should be the minimum.’

Evaluation technologies the company is providing to Petrobras include sonic resistivity, deep resistivity, and magnetic resonance. New drilling technologies include formation testing while drilling and AutoTrack Xtreme, which is a rotary steerable system for harsh drilling environments.

‘We’re working with new technologies to support Petrobras on the challenges they’re going to have on the sub-salt drilling,’ Figueiredo says, adding the Brazil office is tapping into experience gained by Baker Hughes’ work in GoM salt drilling. ‘Brazil is ahead, compared to most of the countries on technologies,’ he says. ‘Most of our new technologies come to Brazil.’

Anticipating need for heavy oil production off Brazil with the heavy oil component of the Campos and Espirito Santo basins,Weatherford has teamed up in a Canadian JV with GRIT to create a cold heavy oil production system (CHOPS), Foster says. Within a year, he says, the technology can be ready for the offshore Brazil market. An onshore trial is slated for later this year.

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