© Reuters. FILE PHOTO: A worker walks inside the Brazil’s Petrobras P-66 oil rig in the offshore Santos basin in Rio de Janeiro, Brazil September 5, 2018. Picture taken September 5. REUTERS/Pilar Olivares/
By Marta Nogueira
RIO DE JANEIRO (Reuters) – Brazil’s Petrobras may look abroad for future growth, two sources with knowledge of the state-run firm’s plans told Reuters, after environmental regulators dashed its hopes of exploring near the Amazon (NASDAQ:) River where it had aimed to make its first major domestic oil discovery in over a decade.
Petroleo Brasileiro, as the company is formally known, has spent years reducing its international footprint to focus on deepwater assets in Brazil’s vaunted pre-salt areas, so its impulse to explore foreign opportunities is an about-face.
President Luiz Inacio Lula da Silva, during his last mandate in 2008, compared the first major oil discoveries pre-salt fields far off Brazil’s coastline to a winning lottery ticket. But exploration rights auctioned in areas off the southeast coast in the past decade have not lived up to the hype.
Petrobras is struggling to replenish proven domestic reserves of 8.9 billion barrels, and increasingly reliant on pre-salt oil stocks that could peak by the end of this decade.
The government’s Energy Research Office predicts current Brazilian production of 3.1 million barrels of oil per day (bpd) will begin to fall after peaking at 5.4 million bpd in 2029.
Petrobras’ main bet on replenishing its reserves had been the Equatorial Margin, some 2,200 km of deepwater and ultra-deepwater assets along Brazil’s northern and northeastern coast. The most promising patch is believed to be in the Foz de Amazonas, where the world’s largest river meets the Atlantic Ocean. Exxon Mobil (NYSE:) has made major new discoveries not far away in neighboring Guyana.
Brazilian environmental protection agency Ibama last month rejected a Petrobras request to drill a deepwater well in the region, citing potential environmental risks.
The two sources said Petrobras was unprepared for Ibama’s decision, which it is appealing.
According to one of the sources, the Equatorial Margin has been the company’s “Plan A, B, and C” for restocking reserves. But if those efforts fail, Petrobras will have to look abroad for future opportunities, said the two sources who asked for anonymity to discuss sensitive information.
“With all this discussion and with all the exposure that Petrobras has been facing on the Equatorial Margin, it’s most likely that there will be a strategy to leverage the international portfolio,” one of the sources said. Petrobras never stopped looking at opportunities abroad, the source added, but it is now time “to look more closely.”
Potential foreign offshore targets include Guyana and Suriname, which share a similar underwater geology to the Equatorial Margin, Petrobras Chief Executive Jean Paul Prates recently told newspaper O Estado de S. Paulo.
“Perhaps, if it’s impossible to drill (in the Foz de Amazonas), we can test something in Guyana and Suriname,” he said. “For now, it’s just an idea, an internal conversation.”
In March, Reuters reported that Petrobras was among at least 10 companies including Shell (LON:) and Chevron (NYSE:) to consider bidding on a Guyana oil auction, now scheduled for July. Prates said in the interview that Petrobras had now paid a participation fee for the widely anticipated Guyana auction.
Over coming years, Lula wants Petrobras to pivot to producing more renewable energy. Such projects could also add scope for foreign expansion, said Mauricio Tolmasquim, Petrobras’ chief energy transition and sustainability officer.
For example, he said Petrobras could look to partner with other companies on foreign offshore wind farm projects to gain experience in a sector for which Brazil currently has no legal framework. However, he stressed that the company will likely need to ramp up petroleum production to pay for its green pivot.
Petrobras has exploratory projects in Colombia, Argentina and Bolivia, but most of its planned investments are in Brazil.
It plans to drill two new wells in 2024 in Colombia, where last year it announced the country’s largest ever discovery. Petrobras also expects to keep exploring in Bolivia and Argentina, one of the sources said.
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