With the 11th round of tendering for O&G block in Brazil set to start next week, it is important to look at some of the serious risks involved in drilling for O&G in Brazil’s Equatorial Margin. Most of the offshore blocks being tendered in this 11th round of bidding are located along Brazil’s northeast and north coasts. This, according to the Brazilian government, is being done in order to de-centralize O&G production in Brazil, where most of the oil and gas E&P is done along the southeast coast, basically centered off the states of São Paulo, Rio de Janeiro and Espirito Santo.

This is all well and good, when considering the need to redistribute O&G wealth to other parts of the country, however, both the Brazilian government and the ANP (National Petroleum Agency) have been lax in researching the marine national parks that are located along this Equatorial Margin, which runs from the state of Rio Grande do Norte to Amapá, right on the border with French Guiana.

Of the 289 blocks on offer, 170 are located on the Brazil’s equatorial margin. Unfortunately the Brazilian government never got around to obtaining primary research data such as water temperature, tide variations, data on biodiversity and wind patterns for the equatorial margin and this is the main complaint being made by environmentalists. The coast from the state of Maranhão to the state of Amapá is the largest mangrove coast in the country and there is an important Marine National Park off the coast of Maranhão, the Parcel Manoel Luis National Park, which is a veritable ship cemetery with over 100 sinkings. It is made up of 18 square kilometers of coral heads that nearly reach the surface of the sea and are home to many marine species of fish and crustaceans, currents there are very strong and the tide variations are large.

To the north at the tip of Amapá is the beautiful Cape Orange national park also home to a wide variety of marine and land species. The government sustains that the primary data will be developed by the operator that acquire the blocks, even though this primary data should have been acquired before the decision to negotiate these block was ever made. This long coast on the equatorial margin is also very remote, with little if any infrastructure in place for emergency oil spill cleanup equipment. All this points to the fact that operators acquiring the block will need to make large investments in primary research and emergency response infrastructure in order to attain an environmental license for exploring the blocks. It is a notable fact that there are expectations of around 7,5 billion barrels boe of reserves in the equatorial margin that has seen very little exploration and development and this is attracting many operators, big and small to the area. We will see more on the risks of drilling in the Brazilian equatorial margin in future posts. 

 

 

 

 

A major opportunity for new business and new joint ventures was the prime result of the 2012 edition of the Rio O&G. Brazil’s National Petroleum Organization (Onip) believes the event may have been a catalyst for R$ 152,8 million (US$76,4 million) in new business for the next twelve months. A study made by Onip with companies present and the Rio O&G 2012 showed that 84% of these companies expected to undertake some for of new business opportunities in the near future. A total of 13 foreign and 17 local O&G companies negotiated to form joint ventures in the industry, of these 13 expect to close a deal on new joint ventures in the near future. These include local companies and companies from Canada, U.S, England, Argentina, Italy and France. Although many major and super-major O&G operators were present in the event, a large portion of the business transaction were done by small and medium operators, equipment and service suppliers, some of which are new to the O&G industry. The Rio Oil&Gas 2012, showed that there is still massive interest by players in the O&G industry to invest in Brazil. With the 11th round of tendering for new O&G block off the coast and inland slated to commence in May 2013, the industry is just heating up and industry analysts expect that the volume of new business in the industry will increase significantly after the conclusion of the 11th round of tendering. The event actually started with low expectations for new business deals, however this quickly turned to optimism one the government officially announced that the 11th round of tendering would definitely occur in 2013. It is important to note the the 11th round of tendering in May will include only inland and post-salt blocks, yet it has been confirmed that the tendering for pre-salt blocks will take place in November 2013, which greatly exited those operators and suppliers with interest in participating in pre-salt business, a segment of the O&G industry heavy on subsea and deepwater equipment suppliers.

Petrobras will launch a world first floating offshore oil terminal in order to be able to transfer oil to oil tankers offshore, beginning in 2014. Up until now the oil had to be transported through pipelines from the offshore rigs to the coast where tankers would load up the oil. It is expected that this new system will decrease oil transportation costs as tankers will be relieved from the high Brazilian port taxes, the tankers will also save up on their own bunker oil as the distances they will have to travel will decrease. The new system should be used mainly for export oil and will also probably be a hub for tankers coming to fill up on deepwater pre-salt oil. Since most pre-salt acreage is located up to 300km from the coast the storage unit, which will be moored around 90 km from the coast definitely makes sense. The storage ship will be located reasonably close to the production rigs and will be capable of storing up to 2 million barrels of oil, which is equivalent to Brazili´s daily oil production. A system of subsea conductors and flowlines controlled by valves will transport the oil from the production rigs to the storage ship, thus simplifying the oil transfer process and making this process safer and less costly. The cost of building the floating storage unit is estimated at US$ 318 million, not including the freight taxes. It is reported that the ship will be built in China by an Indian company called Tanker Pacific. Some say it would be ideal if the storage ship could be built in one of the new shipyards in Brazil. However, in order to guarantee the 2014 deadline, it was deemed better and safer to use a Chinese shipyard which has the necessary experience in large tanker manufacture and refit. It is not clear which Chinese yard will be responsible for this.

An interesting article by the leading Brazilian newspaper O Globo, signed by Journalist Marcio Beck, brings to light the need to urgently create a database with information on the “DNA” of oil produced in Brazilian fields. According to researchers from the Academia and from the O&G industry, this is essential in order to speed up the identification of those responsible for any given oil spill.

According to the article, the basic characteristics found in the formation of an oil reservoir, such as types of stones, sediments and organic matter along with time, temperature and pressure conditions, which give a distinct DNA to each different oil reservoir. Therefore, it would be possible to identify from which field any given oil sample originated from. This would expedite identifying which operator is responsible for a spill in order to quicken response to spills and clean up of affected areas.

This would also help end the mystery pertaining to the so called “orphan” oil slicks (those oil slicks that cannot have their origins immediately identified). A good example is the Chevron oil spill in the Frade field at the Campos Basin, in November 2011, which was originally considered an orphan spill, when first identified by Petrobras between the Frade and Roncador fields. Only 2 days after the beginning of the spill, on November 9,did Chevron officially communicate its responsibility for the spill and initiate security and containment measures.

Another good example of how this database could be used is the fact that Chevron claims that the oil that is still seeping through the crack in the rocks under the seabed are not from the same well as the oil from the spill in November. This claim is based on the fact that samples of this oil were analyzed by Ipex, a laboratory belonging to Brazilian independent operator HRT Oil & Gas and revised by Chevron technicians, attests to the fact that the origins of the oil samples differ. The operator does not divulge the exact test results or the oil “DNA” as this is considered classified information.

With such a dynamic growth as the Brazilian O&G industry is experiencing and with the knowledge that this growth will continue for another decade at least, signifying hundreds of new wells to be drilled and put in production, where the oil will go upstream to refineries by way of thousands of miles of pipelines and hundreds of tankers, it may become extremely difficult to identify a spill´s source without a comprehensive independent oil identification database.

It is probable that any such independent oil analysis laboratory would be headed by Coppe-UFRJ as they are the leading academic institution in Brazil, when it comes to oil and gas research. According to Luiz Landau, a leading engineer at Coppe-UFRJ and coordinator of its Laboratory of Computational Engineering Methods (Lamce) at Coppe-UFRJ, the Brazilian database should be centralized and contain the chemical signature of the oil in each well in Brazil. “The companies (operators) have databases because it is interesting commercially.” There is also the strategic value in being able to compare different kinds of oil.

Claudio Paschoa

The Ponta Negra Terminal (TPN) to be built at the south side of Jaconé Beach at Ponta Negra Point is to be one of the biggest ports in the country. DTA Engineering, responsible for the project, unofficially called the Pre-salt port and with an investment forecast of $5,4 billion in an area of 557,2 thousand square meters, is expected to link oil & gas pipelines from the Pre-salt plays to the Petrochemical complex of the state of Rio de Janeiro (Comperj), which is located in the nearby city of Itaborai. The project includes a port, a ship and rig maintenance shipyard and a refinery. Authorities consider the location ideal due to the fact that the point has a natural depth of 30 meters.

The refinery project is forecast to receive 850 thousand barrels of oil per day, equivalent to 40% of the current Brazilian oil production. The builders are promising an unspecified novel new technology against oil spills, this new technology is also untested.

Environmentalists are very worried because this location at Black Point (Ponta Negra) is one of the most preserved beaches in the state of Rio de Janeiro. It has its own characteristic sand, the location is important breeding area for four kinds of whales, it is also a location which was visited and considered of great environmental importance by Charles Darwin in the XIX century. “Ponta Negra” is also an excellent surf location, which can hold swells up to 20 feet. This is another worry as massive breakwaters will have to be built way beyond the point itself. The swells there are so strong that they may cause serious damage to the port and to ships, which in turn may lead to environmental accidents. Local fishermen are also incensed by the idea of having such a location rich in various noble fishes polluted.

There have been no serious studies on the environmental impact of such an enterprise in this location and the city of Marica, which is the nearest city to the port complex, simply does not have enough infrastructure to house such a major project, almost certainly causing an increase in pollution, crime and violence in a very calm area, due to the influx of workers for the port construction. Shantytowns are expected to be built by these workers and there are no known plans to curb the imminent pollution caused by such an influx of people.

Unfortunately, the state government is all for it, irrespective of the consequences. The national development bank BNDES is also very interested in financing the project and little is spoken about environmental impacts. When any of the parts directly involved actually speak of impacts, they downplay any consequences and actually make fun of such worries.

The sad truth is that by the second semester of 2012 the port is expected to receive its environmental licence, with only a token environmental impact study to back it up. Financial and logistic interests are nearly certain to overlap any concerns with nature.

There are other locations along the coast that could house this port complex leaving a much smaller footprint, unfortunately it looks like the developers and the local government have their mind set on this and are not even looking at any alternatives. So once again it looks like ignorance and economic interests will prevail, as is almost always the case in these types of developments in Brazil.

Claudio Paschoa

Most of the new shipyards to be built in Brazil are still on the drawing board. The exceptions are the Inhaúma yard, which was taken over by Petrobras and is being renovated as a ship repair yard, and the OSX shipyard which will be located within the Açu port complex in the northern part of the state of Rio de Janeiro. As both the port and the shipyard are owned by the EBX group, which also owns OGX OIL & GAS, they have guaranteed orders and have already received a partial environmental license and construction has already begun. The orders are guaranteed by the demand for ships from OGX, so they do not depend directly on orders from Petrobras. The Jurong Aracruz yard already has its environmental license but is still clearing its industrial are of unwanted vegetation and has not officially begun to build its infrastructure. The EISA Alagoas yard, belonging to the Synergy Group, will be built in Coruripe in the state of Alagoas and will require and investment of around $850 million. They are still awaiting their environmental license in order to begin infrastructure construction, although they believe they will have the license by the end of the year. They definitely depend on Petrobras orders to grow, but according to the Group, the shipyard will be built even if they do not have guaranteed orders from the national operator. In south Brasil the Brasil Shipyard (EBR) will be built in São João do Norte in the state of Rio Grande do Sul, although the construction has not begun yet, the owners plan for the yard to be operational by 2014. EBR´s construction will demand an investment of around $200 million. Another shipyard construction which is beginning is the Paraguaçu Shipyard to be built in the northeast state of Bahia, by a consortium made up of Odebrecht, OAS and UTC Engineering. The basic infrastructure construction has begun and the schedule is for the yard ready by 2013 following an investment of around $700 million, and an expectation of hiring 3 thousand workers during construction. As we can see there is still a long way to go for these new yards to become operational and help increase the output of ships built in Brazil. As we´ve seen before, most if not all the existing shipyards in Brazil are packed with orders and some may even be overbooked, these new yards and other now in the planning stage will be vital to release the bottleneck created by the massive demand in ships and rigs by Petrobras and other major operators. Claudio Paschoa

Where is the Petrobras Deepwater Containment System?

Brazil today arguably has the largest deepwater drilling program in the world and most probably the biggest all around drilling effort in the world to boot.

In 2011 alone 162 new wells will be drilled in Brazil, an all time high and a 30% increase compared to last year.  Of these, 53 wells will be drilled offshore.

It´s safe to assume that over 20% of these will be in deepwater pre-salt or deepwater post-salt plays along the Santos, Campos and Espirito Santo Basins. When Petrobras first announced this significant increase in their drilling program scope, a lot was said about expectations for more large pre-salt finds, increase in production, new drilling technologies, logistics problems and solutions and ultimately, profit.

Unfortunately precious little was said or written, for that matter, about more stringent drilling safety standards, the need for more efficient and timely inspections or projects to build subsea deployable containment systems. 

A deepwater containment is vital for safeguarding deepwater drilling from massive spills caused by uncontrollable deepwater wells or a BOP blowout. Most importantly it is fundamental to safeguard the ocean and coastal environments.

The pre-salt boundaries are around 800km long and 200km wide, at least, pending probable new discoveries, which periodically will redraw these boundaries. There are deepwater plays or probable plays located anywhere from less than 100km from the coast to over 300km, such as the Tupi or Lula field. That is all the way to the edge of Brazil´s continental basin, offering a massive exploration area where a drilling operations could go tragically wrong, seriously affecting the health of various environmental habitats, underwater, on the surface and in the case of hundreds of seabirds, also in the sky.

I´m certainly not saying that Petrobras and more specifically the Petrobras research center (CENPES) in Rio de Janeiro are not developing a project for a deepwater containment system, only that if they are. they certainly are keeping it deep under wraps.

Sincerely I can´t see the point in keeping a vital deepwater drilling operations safeguard project hidden. Then again Petrobras is known for being very cagey about its strategic information. Go figure.

It would be even more worrisome if it came to light that such a project is not even being developed. Inexorably, that would be a real shocked, unfortunately such a possibility is all too real. Petrobras is a world within itself and they do things, when and if they see fit. It truly is a scary situation.

If you increase the tempo of a drilling effort, you increase the risks. In the case of deepwater drilling the risk are very high anyway, so it would be irresponsible to downplay the risks involved. A massive deepwater blowout is an all too real possibility when considering that pressures from certain wells, that can easily surpass 10,000 p.s.i..

Hopefully we´ll soon be receiving some serious information concerning a deepwater containment system for oil spills from the National Operator but for now we can only hope they have the good sense to pursue such a system and get it operational, soonest. If they can even be botherd to let us know.

Once things go sour, it will be pointless to blabber about how many spill control ships and how many trained response crews are available. Imagine if a massive spill occurs in ultra deep waters, over 200km from the coast. Right now, there would be no solution, other than drilling relief wells, and that is unacceptable.

If such a system is only to be built after a deepwater blowout goes out of control, then we are all in for a shocking experience, as the people and offshore workers at the GOM so recently experienced. Even shallow water drilling should have its own containment system available for immediate use, preferably both deep and shallow water containment systems should be available and stored in strategic locations along the coast and I don´t mean only one of each either, not with this amount of drilling.

For now we should applaud initiatives, such as that from ExxonMobil, Chevron, ConocoPhillips, and Shell which in a partnership created the Marine Well Containment Co., and have developed it to an operational stage. They will soon be able to deploy an efficient containment system for the GOM.

This system was created as a direct result of the Deepwater Horizon tragedy, not because of the safety consciousness or any forsight from O&G operators or service providers.

The line has always been (well at least until the GOM mega spill), that the deepwater safety equipments, as in a BOP for example, are infallible, not much thought was given to the possibility of human failure in adhering to safety procedures, as was the main case of the disaster at the GOM. This MWCC system was inspired by the deepwater containment emergency system developed to stop the spill at Macondo, and an absurd amount of oil was left spilling while this desperate development by trial and error went on.

At least we have this good news from MWCC:

The Marine Well Containment Co. has completed and made available its initial well containment response system. The system is for rapid containment response to an underwater well control incident in deepwaters of the Gulf of Mexico.

The system has a subsea capping stack to shut in oil flow or to flow the oil via flexible pipes and risers to surface vessels. The system also includes subsea dispersant injection equipment, manifolds, and, through mutual aid among members, capture vessels to provide surface processing and storage.

The interim system can operate in water depths up to 8,000 ft (2,438 m) and has storage and processing capacity for up to 60,000 b/d of liquids. The capping stack has a maximum operating pressure of 15,000 psi (103 MPa). The equipment is located on the U.S. Gulf Coast.

The Marine Well Containment Co. is a partnership among ExxonMobil, Chevron, ConocoPhillips, and Shell. MWCC says additional work on this initial system is under way with completion scheduled in 2012.

Since Petrobras has decided to take it upon itself to develop a deepwater containment system, it is high-time they let the world now how their efforts are progressing and when will we have an operational system ready for deployment.

 

Claudio Paschoa

Photo courtesy of MWCC

Above: MWCC´s Interim Containment System

Above: MWCC´s Expanded Containment System

Above: Photo of MWCC´s Interim Containment System

Above: Fire on the Deepwater Horizon drilling rig over the deepwater Macondo well at the GOM

Abrolhos is short for open your eyes in Portuguese, an expression meaning beware, often used by Portuguese navigators when naming islands flanked by dangerous reefs. There is even a group of islands going by the same name along the west coast of OZ.

Not only do these two places (In Brazil and Australia) have a name in common but both are also pristine islands officially protected as ecological preserves by the countries they belong to. Both are also flanked by major Oil & Gas E&P areas. The Brazilian Abrolhos is a whale haven and contains a wonderful yet fragile flora and fauna ecosystem, both on land and underwater. The place is thought to be one of the world´s coral matrixes, where the rest of the coral in the world originated from after the last ice age, something like 16 thousand years ago.

There are also 16 O&G blocks flanking the Abrolhos islands, comprising areas pertaining to the South Jequitinhonha Basin and North Espirito Santo Basin, all of which are located within a 50 km radius of Abrolhos, where there is a national marine park (which happens to be the first NMP in Brazil). There is no oil production in this area yet but that is bound to change, unless strong environmental opposition occurs, which makes me wonder if anyone even cares. If anyone does they are sure being circumspect about it.

As it is, a Brazilian regional federal court has overruled a ban on oil exploration in the Abrolhos offshore area off the State of Bahia, located in the northeast, freeing the area to activities by Brazilian and foreign oil companies. The regional federal court in Brazil's first region upheld an appeal by ANP against the ban on the grounds of the general public's economic interest. The ban was enforced early this year after a local Federal Court obtained an injunction prohibiting oil exploration in the area on environmental grounds.

National O&G player Petrobras holds the concession to 11 of the blocks, Perenco Corp. holds to two, Queiroz Galvao holds one, Royal Dutch Shell holds one and Oil & Natural Gas Corp. (ONGC) holds  one,  according to ANP (Agência Nacional do Petroleo), the national O&G regulator. "Abrolhos is an environmentally sensitive area, frequented by whales," an ANP spokeswoman said. "All activities there have to gain environmental licensing from federal environmental institute, Ibama," she said. What she omitted was that any damn O&G area must gain environmental licensing from federal environmental institute, the famous Ibama. So significantly she meant that there will not be any special concerns or even  more stringent rules applying to this very special and unique ecosystem, and that´s that!

Well I sure hope there is at least one big momma of a reservoir among these 16 blocks (which according to my sources there actually may very well be), because it is a serious environmental risk. If you still didn´t catch my drift, think of Abrolhos as a miniature Galapagos, where each island has its unique ecology. Where there is subsea ecosystem truly unique in the South Atlantic, there is nowhere in the South Atlantic remotely like this. It sure as hell better rate as “General public's economic interest”, because there will be hell to pay if this place goes sour do to some player messing up and causing a major spill there.

What shocks me is that there is simply no environmental outcry or even environmental agencies seriously and publically questioning this decision and its potentially sad consequences. Or do the world´s major environmental agencies and world media not care! Interesting, it sure shows the strength of the O&G industry, luckily I know that at least they do care and will be careful. Well I hope anyway. I guess that´s all we can do, hope.

 

Claudio Paschoa

 

After a nearly perfect drilling campaign on various fronts in 2010, OGX start 2011 with new discoveries in the Campos Basin.

Although there was much skepticism at the start of OGX´s creation in 2007, after last year´s performance, the new Brazilian operator, which was created by Brazilian businessman and investor Eike Batista adding to the portfolio of his EBX Group can now easily be considered as a good investment, especially for those who bought in early.

Eike´s strategy to hire and partner with Petrobras´s extraordinary geologist and executive Paulo Mendonça was vital not only to gain market value as to bring in deep knowledge of where do drill and how to plan the E&P campaign.   It´s important to not that Petrobras´s exploratory success rate more than doubled after Mr. Mendonça took over the national operator´s exploration team.

Since its creation OGX has secured over 9 billion boe and 50 fields discovered (onshore and offshore). This year it has already discovered gas in a section of well 1-OGX-25-RJS in block BM-C-39 in the Campos Basin and oil in 1-MRK-3 4P also in the Campos Basin where it holds a share with Maersk as the main operator, however they did have one setback in the Santos Basin where the OGX-23 well had negative results for commercial oil. According to ANP, OGX is the biggest private investor in O&G exploration in Brazil, surpassing strong foreign competition.

The potential shown by OGX´s onshore blocks in the Parnaiba Basin (mostly gas) and the Para-Maranhão Basin (with a geological model similar to Ghana in WA) are also noteworthy along with the blocks it also owns in the Espirito Santo Basin which have already surpassed discovery volume forecasts.

This year it will be interesting to see how OGX´s drilling program unfolds and also how many of these recent discoveries it will be able to get online. The player is now dependant on getting the necessary assets such as FPSO´s and production rigs in place and pumping in order to quickly see more profits coming in. It´s also important to note that the drilling campaign will still be going on and that at this point they´ve basically uncovered a new O&G province in the south Campos Basin.

Claudio Paschoa