Brazil will conduct two or three pilot projects that will tap unconventional oil and natural gas projects in 2018 in an effort to boost onshore production and soften local resistance to techniques such as hydraulic fracturing, the director general of the country’s National Petroleum Agency, or ANP, said Wednesday.
Speaking on the sidelines of an industry event in Rio de Janeiro, ANP Director General Decio Oddone said the Mines and Energy Ministry was working to carry out the pilot projects in the Reconcavo Basin in Bahia state, the Parnaiba Basin in Maranhao state and the Sao Francisco Basin in Minas Gerais state. The studies would be conducted by private companies under the auspices of the ministry, Oddone said.
“We’re going to use these pilot projects to obtain more knowledge from a geologic and operational viewpoint, as well as from an environmental point of view so that we have the capacity to properly identify the risks involved with this activity,” Oddone said.
Brazil’s 12th bid round, held in November 2013, was expressly developed with an eye toward increasing onshore natural gas exploration and production, including from unconventional deposits such as shale. But just 72 of the 240 blocks put up for sale were sold amid complaints about onerous obligations to use locally produced goods and services and uncertainties about how the ANP was going to regulate hydraulic fracturing.
Public resistance to unconventional oil and gas production was also much larger than anticipated, with public prosecutors in several states filing lawsuits that blocked the use of techniques such as hydraulic fracturing and horizontal drilling. The ANP was eventually forced to extend the exploration periods for some blocks because of delays related to the lawsuits and court rulings.
The tests are one of the first steps in discussions about “whether or not Brazil wants to take advantage of unconventional resources,” Oddone said.
In addition to public resistance, Brazil also faces several other challenges to tapping its unconventional oil and gas wealth. The country lacks the massive number of onshore drilling rigs and know-how needed to tap unconventional deposits, while logistics could be troublesome in the rural and remote regions likely to hold the best reservoirs given Brazil’s lackluster highways.
Despite the challenges, the resource potential is immense in a country where just 5% of onshore and offshore sedimentary basins have been explored. According to Oddone, Brazil holds about 200 trillion cubic feet worth of unconventional resources. UPCOMING BID ROUNDS
Brazilian equipment manufacturers and service providers, meanwhile, will not get higher local content requirements for the 15th bid round, which will be held March 29, or the fourth subsalt round, scheduled for June 7, Oddone said. Trade groups representing local oil industry suppliers had urged the ANP to increase requirements to use locally produced goods and services at public audiences for the two auctions.
“The local content percentages have already been defined by the National Energy Policy Council,” Oddone said. The CNPE is the government’s lead panel on energy policy. “They will be the same indexes used for last year’s auctions. This has already been discussed, and I don’t see any chance for a change.”
The CNPE established obligations to use 18% in the seven-year exploration phase. In the production phase of development, oil companies will be required to use 25% local goods and services in well construction, 40% for collection and export systems, and 25% for stationary production units.
Equipment suppliers and service providers asked for a global local content index of 40% and wanted the ANP to require oil companies to use at least 40% local content in the construction of stationary production units, typically floating production, storage and offloading vessels, or FPSOs.
Oddone also said that the ANP still had time to plan a second subsalt sale in the first half of 2018, which would sell off the rights to produce oil from the transfer of rights area currently controlled by state-led producer Petrobras.
Petrobras holds the right to pump 5 billion barrels of crude from the subsalt deposits under terms of a 2010 oil-for-shares swap with the government. Petrobras paid about $8.51/b for the crude, but the deal included an adjustment after the transfer of rights areas were declared commercial, which has been complicated by the collapse in oil prices. Petrobras and the government are currently in talks, which officials have said will likely result in Petrobras receiving some type of credit in either cash or additional barrels.
An agreement on the price adjustment for the transfer of rights areas would allow the government to sell off the volume of crude in excess of 5 billion barrels discovered by Petrobras, with the ANP estimating the area could hold an additional 6.1 billion-15.1 billion barrels of oil equivalent.
According to Oddone, the ANP needs about three or four months to plan out the sale. “I believe that there is still time to hold an auction of the excess volumes from the transfer of rights areas,” he said.
The timeline for a potential sale is complicated by Brazil’s presidential elections in October, Oddone said. Brazil imposes a moratorium on public tenders about 90 days ahead of the elections, which means the ANP would not be allowed to publicize the sale.
Marcio Felix, the oil and gas secretary at the Mines and Energy Ministry, said previously that the government would like to hold the auction by the end of June or the first week in July, before the moratorium goes into effect.