brazil reduces oil production plans

[jk]

http://gregor.us/

Oil and La Frontera

August 17, 2009
A complacent view that’s developed here in the United States over the past 40 years is that oil in our own hemisphere can be regarded, functionally, as being our own. Interestingly, that’s probably a result of US production having peaked in 1971 at an average of 9.6 Mb/day. Because since that time it’s been better to print dollars and trade them for oil, than to worry too much about our own, declining supply.
Canada, Mexico, Venezuela and Brazil have each seen their own, individual oil production cycles play out over the past decades as well. But the first three of these have produced a non-trival quantity of oil for US consumption, during that time...

http://www.nytimes.com/2009/08/18/wo...brazil.html?em

Brazil Seeks More Control of Oil Beneath Its Seas


RIO DE JANEIRO — Faced with the world’s most important oil discovery in years, the Brazilian government is seeking to step back from more than a decade of close cooperation with foreign oil companies and more directly control the extraction itself.

[GRG55]

Re: brazil reduces oil production plans

...

Brazil Seeks More Control of Oil Beneath Its Seas


RIO DE JANEIRO — Faced with the world’s most important oil discovery in years, the Brazilian government is seeking to step back from more than a decade of close cooperation with foreign oil companies and more directly control the extraction itself.

Petrobras is one of the more competent and capable NOCs, but still subject to tremendous political influence and pressures. That's not usually helpful.

If Mr. Gabrielli, who apparently believes that developing the Santos Basin ultra-deepwater fields is some sort of guaranteed winning lottery ticket, is indicative of the thinking in the Petrobras boardroom then that company will in the not too distant future be a widows and orphans short.

...Mr. Gabrielli, the Petrobras president, argues that the government has good reasons for wanting to limit foreign participation. In 1997, oil prices were much lower and Brazil’s economy was struggling. Today, Brazil has more than $220 billion in foreign reserves, oil prices are higher and Petrobras has become the fourth biggest company in the Americas.

“The financial condition is completely different,” Mr. Gabrielli said. And the development of the new fields, once seen as risky, “now is a winning lottery ticket.”...

[jk]

Re: brazil reduces oil production plans

if you read gregor's piece, his point is more that brazil is not going to maximize its production in the short run in order to meet current world demand. he points out mexico will stop exporting within the next few years, venezuela has damaged its productive capacity. now brazil will take its time developing its fields. supply crash, anyone?

[GRG55]

Re: brazil reduces oil production plans

if you read gregor's piece, his point is more that brazil is not going to maximize its production in the short run in order to meet current world demand. he points out mexico will stop exporting within the next few years, venezuela has damaged its productive capacity. now brazil will take its time developing its fields. supply crash, anyone?

Surprised?

From 11-09-07:
http://www.itulip.com/forums/showthr...19470#poststop

Certainly good news, and offshore Brazil is a prospective basin, but unfortunately this is following a now familiar news pattern for petroleum exploration annoucements:

On Nov 12, 2005 Kuwait Oil Company announced that its largest field, Burgan, would have a lower peak production than previously forecast (1.7 mm vs 2 mm bbls/d). A few months later there were headlines around the world of a "massive" new condensate/light oil discovery in the north of Kuwait. Since then? Not a peep. But Kuwait maintained its official OPEC reserves figure despite the Burgan revision.

In 2005 reports that Mexico's Cantarell field was indeed experiencing a production decline began to be confirmed with Ministry data releases. A few months later (March 2006) there were official press reports of a "massive new oil discovery" by Pemex offshore Mexico. Within days that discovery was being touted as 10 Billion barrels. I haven't updated my file for a while but the last number I have from Mexico's Oil Ministry is 43 million barrels.

On Sept 5, 2006 Chevron, Statoil and Devon Energy announced Jack-2, a "huge Gulf of Mexico discovery". The US press and Bubblevision immediately entered a state of delirium. Before the day was out this ultra-deep (7000 ft) water, $100 million discovery well, TD'd at 20,000 ft below the sea floor, had been inflated to a 15 Billion barrel discovery, a figure that was repeated ad nauseum by countless Congressmen and Senators, and petroleum industry consultant groupies. That this claim was totally ludicrous - it meant a single well had found as much oil as all of Exxon Corporation - completely escaped all the people being interviewed by the breathless Bubblevisionaries.

I will confidently predict that this newest discovery will be revised downward by no small amount, and the reality of the ultra-deep nature of the find will temper production forecasts, but those won't make any headlines... :p

Just a side note: This is another sub-salt discovery. The salt layers attenuate the seismic signals used to identify structures to target with a drill. The huge increases in desktop computing power and the seismic processing algorithms this allows have significantly advanced sub-salt targeting and improved exploration success rates. When I started in this business my employer had a Cray supercomputer in a "glass house". What the geophysicists can do on their desktop today goes way beyond the Cray; the transformation has been dramatic.

The Chevron operated Jack-2 in the Gulf of Mexico is also a sub-salt discovery. Chevron, BP and Devon have applied these techniques to prospects in Angola, and BP and Devon have used them offshore in the Egyptian Gulf of Suez. This is unlocking more oil in places that were previously at or near the end of their post-salt oil exploration potential.

And this from 02-18-08:
http://www.itulip.com/forums/showthr...27909#poststop

So what are the Brazilians up to now?

• Petrobras alone can't possibly raise or borrow the huge sums needed to develop Brazil's offshore oil resources;
• Although Petrobras is one of the more competent NOCs [national oil company] it does not have access to all the knowledge and data needed to efficiently develop the ultra-deep Santos basin;
• Petrobras needs the select few IOCs that can supplement its capabilities in the ultra-deepwater...and it probably needs some of their cash too;
• What is going on now is just more posturing...and not very sophisticated posturing either :p
• Expectations [raised in part by some of the ridiculous discovery claims coming from Brazil itself] that Brazil would "fill the gap" with large increases in oil exports were always misplaced. There was never any logic behind the idea that Brazil would export raw crude and not maximize the domestic industrial benefits from its own energy. Brazil is not a totally corrupt, completely hopeless fourth world nation like Nigeria...but humans the world over seem unable to avoid the corrupting influence of petroleum, and that potential for personal gain for a select few influencial and well connected individuals might be a motive to maximize exports. Regardless of how fast Brazil, or the rest of the world, would like to see production increases, Tupi and the other Santos Basin fields will take two to three decades to develop fully.

The important issue imo is whether Brazil will develop its resource at a sensible pace, using appropriate external resources, and maximize the benefits for themselves...or will the politicians and leaders fall under the spell of "potentially vast riches" and follow the same well worn path of so many other nations that were in the same position.

[GRG55]

Re: brazil reduces oil production plans

[QUOTE=GRG55;116819]

From 11-09-07:
http://www.itulip.com/forums/showthr...19470#poststop

Certainly good news, and offshore Brazil is a prospective basin, but unfortunately this is following a now familiar news pattern for petroleum exploration annoucements:

On Nov 12, 2005 Kuwait Oil Company announced that its largest field, Burgan, would have a lower peak production than previously forecast (1.7 mm vs 2 mm bbls/d). A few months later there were headlines around the world of a "massive" new condensate/light oil discovery in the north of Kuwait. Since then? Not a peep. But Kuwait maintained its official OPEC reserves figure despite the Burgan revision.

In 2005 reports that Mexico's Cantarell field was indeed experiencing a production decline began to be confirmed with Ministry data releases. A few months later (March 2006) there were official press reports of a "massive new oil discovery" by Pemex offshore Mexico. Within days that discovery was being touted as 10 Billion barrels. I haven't updated my file for a while but the last number I have from Mexico's Oil Ministry is 43 million barrels.

On Sept 5, 2006 Chevron, Statoil and Devon Energy announced Jack-2, a "huge Gulf of Mexico discovery". The US press and Bubblevision immediately entered a state of delirium. Before the day was out this ultra-deep (7000 ft) water, $100 million discovery well, TD'd at 20,000 ft below the sea floor, had been inflated to a 15 Billion barrel discovery, a figure that was repeated ad nauseum by countless Congressmen and Senators, and petroleum industry consultant groupies. That this claim was totally ludicrous - it meant a single well had found as much oil as all of Exxon Corporation - completely escaped all the people being interviewed by the breathless Bubblevisionaries.

I will confidently predict that this newest discovery will be revised downward by no small amount, and the reality of the ultra-deep nature of the find will temper production forecasts, but those won't make any headlines... :p

Just a side note: This is another sub-salt discovery. The salt layers attenuate the seismic signals used to identify structures to target with a drill. The huge increases in desktop computing power and the seismic processing algorithms this allows have significantly advanced sub-salt targeting and improved exploration success rates. When I started in this business my employer had a Cray supercomputer in a "glass house". What the geophysicists can do on their desktop today goes way beyond the Cray; the transformation has been dramatic.

The Chevron operated Jack-2 in the Gulf of Mexico is also a sub-salt discovery. Chevron, BP and Devon have applied these techniques to prospects in Angola, and BP and Devon have used them offshore in the Egyptian Gulf of Suez. This is unlocking more oil in places that were previously at or near the end of their post-salt oil exploration potential.


And this from 02-18-08:
http://www.itulip.com/forums/showthr...27909#poststop

So what are the Brazilians up to now?

• Petrobras alone can't possibly raise or borrow the huge sums needed to develop Brazil's offshore oil resources;
• Although Petrobras is one of the more competent NOCs [national oil company] it does not have access to all the knowledge and data needed to efficiently develop the ultra-deep Santos basin;
• Petrobras needs the select few IOCs that can supplement its capabilities in the ultra-deepwater...and it probably needs some of their cash too;
• What is going on now is just more posturing...and not very sophisticated posturing either :p
• Expectations [raised in part by some of the ridiculous discovery claims coming from Brazil itself] that Brazil would "fill the gap" with large increases in oil exports were always misplaced. There was never any logic behind the idea that Brazil would export raw crude and not maximize the domestic industrial benefits from its own energy. Brazil is not a totally corrupt, completely hopeless fourth world nation like Nigeria...but humans the world over seem unable to avoid the corrupting influence of petroleum, and that potential for personal gain for a select few influencial and well connected individuals might be a motive to maximize exports. Regardless of how fast Brazil, or the rest of the world, would like to see production increases, Tupi and the other Santos Basin fields will take two to three decades to develop fully.

The important issue imo is whether Brazil will develop its resource at a sensible pace, using appropriate external resources, and maximize the benefits for themselves...or will the politicians and leaders fall under the spell of "potentially vast riches" and follow the same well worn path of so many other nations that were in the same position.

Time to reprise an old thread

Here's what the hype was all about back when this thread was started:

A New Energy Leader: Brazil Wants to Join OPEC

May 09, 2008 – 04:55 PM

Brazilian President Luiz Ignacio Lula da Silva wants to get his country into OPEC -- a move that could lower the price of oil worldwide. With a booming biofuel business alongside new oil reserves, Brazil is poised to become a global energy leader.

In 2007, a huge oil reserve was discovered off the coast of Brazil's Rio de Janeiro. The find boosted Brazil's oil reserves by 40 percent and could catapult the South American nation into the top rank of global producers. In an interview with SPIEGEL President Luiz Ignacio Lula da Silva said that Brazil wants to join the OPEC oil cartel -- a move that could lower petroleum prices worldwide...



And here's where Brazil finds itself now:



Production plateaued almost a soon as that alleged "OPEC sized" discovery was made. Far from coming anywhere close to meeting the "EC" in OPEC, the gap between domestic production and internal consumption would appear to be increasing.

[ProdigyofZen]

Re: brazil reduces oil production plans

[QUOTE=GRG55;261073]

From 11-09-07:
http://www.itulip.com/forums/showthr...19470#poststop

Time to reprise an old thread

Here's what the hype was all about back when this thread was started:

A New Energy Leader: Brazil Wants to Join OPEC

Brazilian President Luiz Ignacio Lula da Silva wants to get his country into OPEC -- a move that could lower the price of oil worldwide. With a booming biofuel business alongside new oil reserves, Brazil is poised to become a global energy leader.

In 2007, a huge oil reserve was discovered off the coast of Brazil's Rio de Janeiro. The find boosted Brazil's oil reserves by 40 percent and could catapult the South American nation into the top rank of global producers. In an interview with SPIEGEL President Luiz Ignacio Lula da Silva said that Brazil wants to join the OPEC oil cartel -- a move that could lower petroleum prices worldwide...



And here's where Brazil finds itself now:



Production plateaued almost a soon as that alleged "OPEC sized" discovery was made. Far from coming anywhere close to meeting the "EC" in OPEC, the gap between domestic production and internal consumption would appear to be increasing.

Perhaps they need to stop exporting so much sugar and instead use it for more biodiesel .

[lektrode]

Re: brazil reduces oil production plans

...
.....
Production plateaued almost a soon as that alleged "OPEC sized" discovery was made. Far from coming anywhere close to meeting the "EC" in OPEC, the gap between domestic production and internal consumption would appear to be increasing.

read: whats about to happen in the US ?
one would think with all this 'new' oil sloshing around, that we'd see much lower prices by now?
or is this just a function of how much the USD has lost value? (that it now takes 100 to buy WTI)
altho gas(oline) prices arent quite as high at the moment, as they were last year at this time (tee-minus 12daze an countin, till launch of summer driveathon season)

[GRG55]

Re: brazil reduces oil production plans

read: whats about to happen in the US ?
one would think with all this 'new' oil sloshing around, that we'd see much lower prices by now?
or is this just a function of how much the USD has lost value? (that it now takes 100 to buy WTI)
altho gas(oline) prices arent quite as high at the moment, as they were last year at this time (tee-minus 12daze an countin, till launch of summer driveathon season)

The USA is exporting the surplus, in the form of crude oil, refined products and also liquified petroleum gas (propane and butane) mostly to Latin America and some to Eastern Canada. That is normalizing the domestic USA crude oil price closer to international benchmarks. However, crude inventories remain elevated over the 5-year range and if the market sniffs another inventory glut building I would expect the WTI-Brent spread to widen like it did last fall.

[GRG55]

Re: brazil reduces oil production plans

Surprised?

From 11-09-07:
http://www.itulip.com/forums/showthr...19470#poststop


And this from 02-18-08:
http://www.itulip.com/forums/showthr...27909#poststop

So what are the Brazilians up to now?

• Petrobras alone can't possibly raise or borrow the huge sums needed to develop Brazil's offshore oil resources;
• Although Petrobras is one of the more competent NOCs [national oil company] it does not have access to all the knowledge and data needed to efficiently develop the ultra-deep Santos basin;
• Petrobras needs the select few IOCs that can supplement its capabilities in the ultra-deepwater...and it probably needs some of their cash too;
• What is going on now is just more posturing...and not very sophisticated posturing either :p
• Expectations [raised in part by some of the ridiculous discovery claims coming from Brazil itself] that Brazil would "fill the gap" with large increases in oil exports were always misplaced. There was never any logic behind the idea that Brazil would export raw crude and not maximize the domestic industrial benefits from its own energy. Brazil is not a totally corrupt, completely hopeless fourth world nation like Nigeria...but humans the world over seem unable to avoid the corrupting influence of petroleum, and that potential for personal gain for a select few influencial and well connected individuals might be a motive to maximize exports. Regardless of how fast Brazil, or the rest of the world, would like to see production increases, Tupi and the other Santos Basin fields will take two to three decades to develop fully.

The important issue imo is whether Brazil will develop its resource at a sensible pace, using appropriate external resources, and maximize the benefits for themselves...or will the politicians and leaders fall under the spell of "potentially vast riches" and follow the same well worn path of so many other nations that were in the same position.

Among other things note the partners. And if Petrobras has to be the lead operator on all Brazilian offshore developments then:
1. Highly unlikely there will ever be more than one bid, as there is never any reason for Petrobras to bid against itself; and
2. The partners are reduced to minority participant cheque-writers...not many will find that an attractive commercial proposition.

Petrobras-led group wins Brazil oil auction with minimum bid

RIO DE JANEIRO | Mon Oct 21, 2013 7:22pm EDT

(Reuters) - Brazilian state-run energy company Petrobras teamed up with European oil majors and Chinese rivals on Monday to buy the country's biggest-ever oil field with a lone bid at the minimum price, a disappointing outcome for a sale that was supposed to launch Brazil as a petroleum power.

Rather than attract multiple bidders and the many global energy players who had long expressed interest in fast-growing Brazilian discoveries, the auction for the giant offshore Libra oil area drew just one tepid bid from a consortium offering the minimum price allowed...

...Petroleo Brasileiro SA, as Petrobras is formally known, took 40 percent of the field in the auction, more than the minimum 30 percent that it was guaranteed by law. France's Total SA and Anglo-Dutch Royal Dutch Shell Plc will each have 20 percent of the partnership, while China National Petroleum Corp CNPET.UL and China's CNOOC took 10 percent a piece.

Highlighting the lackluster interest by most major oil companies in the auction, the companies agreed to give the government the minimum legal amount of so-called "profit oil" from the fields - or oil produced after initial investment costs are paid. Under the terms of a new production-sharing contract, that minimum was set at 41.65 percent of profit oil...

...But the rules governing the sale, giving Petrobras at least a 30 percent stake in every concession and the lead role in all production and exploration, were considered so unattractive by most foreign investors that only 11 companies signed up for the auction, a quarter of what the government had expected.

Even then, some of those who signed up did not participate.

Some observers were surprised that Shell and Total took part, as many had expected bidders to consist mostly of Petrobras and other state companies, mostly from China.

"The entry of Total and Shell is a very good thing because it shows that non-state international companies are interested in this project," said Julio Bueno, secretary of economic development for the state of Rio de Janeiro, Brazil's top oil producing state.

Under the terms of their bid, Petrobras and its partners offered to pay 15 billion reais ($6.88 billion) up front for the rights. They also agreed to spend at least 610.9 million reais on further exploration in the area.

On offer in Libra were production rights to a massive offshore field that holds between 8 billion and 12 billion barrels of recoverable oil, according to Brazil's oil regulator and Dallas-based oil certification company Degolyer & MacNaughton. Brazil estimates it will receive at least $400 billion in taxes and other revenue from Libra over 30 years.

The auction was the first under a three-year-old legal framework that expands state control over Brazil's most prolific oil region, the subsalt reserves off the coast of Rio that hold billions of barrels of oil under a thick layer of salt beneath the ocean floor. Under the new law, Petrobras must lead development of the fields as operator.

[ProdigyofZen]

Re: brazil reduces oil production plans

Among other things note the partners. And if Petrobras has to be the lead operator on all Brazilian offshore developments then:
1. Highly unlikely there will ever be more than one bid, as there is never any reason for Petrobras to bid against itself; and
2. The partners are reduced to minority participant cheque-writers...not many will find that an attractive commercial proposition.

Petrobras-led group wins Brazil oil auction with minimum bid

RIO DE JANEIRO | Mon Oct 21, 2013 7:22pm EDT

(Reuters) - Brazilian state-run energy company Petrobras teamed up with European oil majors and Chinese rivals on Monday to buy the country's biggest-ever oil field with a lone bid at the minimum price, a disappointing outcome for a sale that was supposed to launch Brazil as a petroleum power.

Rather than attract multiple bidders and the many global energy players who had long expressed interest in fast-growing Brazilian discoveries, the auction for the giant offshore Libra oil area drew just one tepid bid from a consortium offering the minimum price allowed...

...Petroleo Brasileiro SA, as Petrobras is formally known, took 40 percent of the field in the auction, more than the minimum 30 percent that it was guaranteed by law. France's Total SA and Anglo-Dutch Royal Dutch Shell Plc will each have 20 percent of the partnership, while China National Petroleum Corp CNPET.UL and China's CNOOC took 10 percent a piece.

Highlighting the lackluster interest by most major oil companies in the auction, the companies agreed to give the government the minimum legal amount of so-called "profit oil" from the fields - or oil produced after initial investment costs are paid. Under the terms of a new production-sharing contract, that minimum was set at 41.65 percent of profit oil...

...But the rules governing the sale, giving Petrobras at least a 30 percent stake in every concession and the lead role in all production and exploration, were considered so unattractive by most foreign investors that only 11 companies signed up for the auction, a quarter of what the government had expected.

Even then, some of those who signed up did not participate.

Some observers were surprised that Shell and Total took part, as many had expected bidders to consist mostly of Petrobras and other state companies, mostly from China.

"The entry of Total and Shell is a very good thing because it shows that non-state international companies are interested in this project," said Julio Bueno, secretary of economic development for the state of Rio de Janeiro, Brazil's top oil producing state.

Under the terms of their bid, Petrobras and its partners offered to pay 15 billion reais ($6.88 billion) up front for the rights. They also agreed to spend at least 610.9 million reais on further exploration in the area.

On offer in Libra were production rights to a massive offshore field that holds between 8 billion and 12 billion barrels of recoverable oil, according to Brazil's oil regulator and Dallas-based oil certification company Degolyer & MacNaughton. Brazil estimates it will receive at least $400 billion in taxes and other revenue from Libra over 30 years.

The auction was the first under a three-year-old legal framework that expands state control over Brazil's most prolific oil region, the subsalt reserves off the coast of Rio that hold billions of barrels of oil under a thick layer of salt beneath the ocean floor. Under the new law, Petrobras must lead development of the fields as operator.

Sounds like they are doing the opposite of what Mexico is planning to do. But I think the only reason they are trying to open up drilling for foreign E&P companies in Mexico is because of what you have brought up, the declining curve of Cantarell and other large oil fields in Mexico.


Mexican President Enrique Peña Nieto still needs to fill in details about his intriguing proposal to open up more of Mexico’s energy industry to foreign investment. The fine points will determine whether the plan he announced last week will indeed attract outside capital.

But based upon early reports, the new leader’s ideas for reforming an industry that Mexico long ago nationalized are significant.

First, a substantial opening of the nation’s energy operations could flow more capital into Mexico so it could produce more of its undeveloped reserves. The production would almost surely translate into an uptick in Mexico’s economy. In turn, that would help the United States. As Texans know, a more stable Mexico means a more stable border.

Second, allowing foreign investors to produce Mexican oil reserves would give U.S. firms greater access to a nearby market. Foreign firms have some rights there already, but they are limited. As a result, energy companies in the U.S. largely have chosen not to work with Pemex, Mexico’s state-owned oil company.

Peña Nieto’s plan won’t give American companies total access to Mexico’s reserves. American companies couldn’t own the reserves, as foreign energy companies can do in the U.S. But international companies could start drilling more in Mexico. And they could participate in profit-sharing contracts, much as foreign companies do in places like Ecuador, Iraq and Malaysia.

If successful, a profit-sharing arrangement could boost the U.S. energy industry, which includes many Texas companies. U.S. firms particularly have the expertise in drilling for shale gas reserves that Mexico lacks.

Third, greater energy production in Mexico would open up greater supplies of oil close to the U.S. Even if oil flows through world markets, it is nice to have the potential of a stable source of energy in this hemisphere. Mexico reportedly has as much as 30 billion barrels of oil and gas offshore that awaits production


Fourth, the fact that Peña Nieto is making this move is eye-catching. As the leader of the PRI, he comes from the political party that once controlled Pemex. Now, he is proposing to open up that very operation. If the details get worked out correctly, this would be a Nixon-goes-to-China move on his part.
Of course, there are many moving parts in this plan. That’s why former U.S. Ambassador to Mexico Tony Garza rightly urges both optimism and caution. Many regulatory details need working out, as Garza noted in this newspaper last week. They will determine how interested companies in Texas and elsewhere are in expanding operations in Mexico.

Still, Peña Nieto’s step toward economic liberalization is encouraging. We hope it opens a path of pursuit for energy companies in Texas and beyond.

Mexican oil industry

The Mexican government nationalized the country’s oil fields in 1938.

Now, Mexico has 10.4 billion barrels of proven oil reserves.

Only Brazil and Venezuela have more reserves in Latin America.

But Mexico’s oil production has fallen more than 20 percent since 2004.

Pemex, the state-owned oil company, has drilled only three shale gas wells

[bpwoods]

Re: brazil reduces oil production plans

On offer in Libra were production rights to a massive offshore field that holds between 8 billion and 12 billion barrels of recoverable oil ...

Fine. But how many millions of bbls will it take to recover that 12 bill? What's the nett bbl going to look like? And will Brazil want to keep more and more for itself? Interesting, as they say.

[GRG55]

Re: brazil reduces oil production plans

Sounds like they are doing the opposite of what Mexico is planning to do. But I think the only reason they are trying to open up drilling for foreign E&P companies in Mexico is because of what you have brought up, the declining curve of Cantarell and other large oil fields in Mexico...

That, and the fact that finding and developing new reserves and production is becoming increasingly more difficult and costly.

First, they need external expertise, which they are securing in part through opening up the services business...private partnerships with Mexican businesses already serving Pemex are increasing, and Pemex is starting to realize it is unable to keep up with changing technology all on its own. One of the reasons Pemex has not drilled many shale wells is because it doesn't know how to do it, it does not have the equipment and it does not have any experience with the complex frac completions. It has to buy that capability. But first has to come the realization that is necessary...slow in a corrupt National Oil Company. I have a classmate of mine from Uni days that runs drill rigs in Mexico...Canadian technology and training combined with Mexican labour...none of the local companies or Pemex can come close to his performance. It's one of the reasons some in Pemex want to disallow him from bidding. :-)

Second they need the money. Part of the push is coming from the local Mexican owned services suppliers and contractors. They know they can do more business if more money is invested and there is more activity than Pemex alone is budgeted for. The pressure on the govt has been coming from this sector, with a lot of influential business families behind it. They don't benefit from Pemex's unions and corruption. Many of them are making proposals to bring in the money and set up the partnerships to drill and develop stuff Pemex cannot get to for years given its budget situation. That might work. The "profit share" arrangements citing Iraq, Ecuador and Malaysia have hardly been very successful at securing any material amounts of funding. These arrangements basically treat the foreign oil companies like a banker making a loan to the National Oil Company...often these contracts have utility rate of return caps in them and so forth.

Change in Mexico will come slowly I expect. Very slowly...

[GRG55]

Re: brazil reduces oil production plans

Fine. But how many millions of bbls will it take to recover that 12 bill? What's the nett bbl going to look like? And will Brazil want to keep more and more for itself? Interesting, as they say.

It doesn't matter how many bbls (or Btus) it takes...what matters is how many US$ it takes and if that energy resource is cheaper and more abundant than the crude oil energy recovered.

As for Brazil keeping more and more of it for itself, that will depend on Brazil's need for foreign currency earnings, population growth, alternative energy sources within Brazil (like cheap ethanol) and some other factors such as how well Brazil's refining capabilities match with the particular crude quality that this field will ultimately produce. One thing for sure...the Chinese rarely invest to serve someone else's domestic market . As you can see from my 06-18-13 post on this thread, net imports of oil into Brazil increased last year. Going to be an interesting time...

[bpwoods]

Re: brazil reduces oil production plans

[QUOTE] It doesn't matter how many bbls (or Btus) it takes...[QUOTE/]

But it must matter. Except of course that all you are concerned about is the cash flow. That crude will not surface on its own. And they will need to divert more to domestic use. That's a squeeze in any language. Anyways, lets get comfortably seated, buy some popcorn, and wait until the first crude comes ashore. The Chinese are a bunch of Mercantalist pirates. They are on a rape and pillage raid.

[don]

In Related SA News

An Odd Alliance in Patagonia

By SIMON ROMERO and CLIFFORD KRAUSS

NEUQUÉN, Argentina — On the windswept Patagonian steppe, crews of roughnecks are drilling around the clock in pursuit of a vast shale oil reservoir that might be the world’s next great oil field.

But that ambition hinges on an improbable alliance between the American oil giant Chevron and Argentina, a politically volatile country with a history of hostility toward foreign investors. What brings them together is the dream of an enormous bounty from the field, called Vaca Muerta, or Dead Cow.

President Cristina Fernández de Kirchner’s decision to press ahead with the partnership with Chevron has her critics and supporters fuming because of the company’s long conflict with Ecuador over an Amazon pollution case. Other legal battles are raging over Argentina’s nationalization of its largest oil company, which also threaten to entangle Chevron.

And protests against hydraulic fracturing, the high pressure blasting of water and chemicals through the shale fields here in the Patagonian desert, have grown so fierce that the police have cracked down on thousands of demonstrators with tear gas and rubber bullets. Though Chevron is not directly involved in the fracturing, the popular agitation over the company’s venture here may subject other energy initiatives in this remote region to greater scrutiny.

Mrs. Kirchner’s embrace of Chevron is a striking demonstration of the lengths to which some governments, desperate for money, and energy companies, combing the world for new sources of oil, will go to emulate the shale oil revolution in the United States.

And few fields offer the potential riches of Vaca Muerta, which has estimated oil and gas reserves nearly equal to the total reserves of the oil giant Exxon Mobil.

“There is nothing close to this in the world,” Ali Moshiri, president of Chevron’s Africa-Latin America Exploration and Production, said of Vaca Muerta in an interview. “In our business risk is part of the equation.”

Even with her health in doubt, after surgery this month to drain a blood clot that resulted from a head injury, Mrs. Kirchner has shown that she is willing to turn her back on years of economic policies that discouraged some energy investments. In the process, she is testing relations with her Ecuadorean ally, President Rafael Correa, who is trying to get Chevron to pay $19 billion in damages related to oil pollution in the Amazon rain forest.

Chevron’s assets in Argentina were frozen for months last year as the Ecuadorean plaintiffs in the case began increasing pressure on the company outside Ecuador. Chevron not only continued to operate in Argentina after that initial scare, but also opted to aggressively expand here, reflecting a vital need by big oil companies to find new oil reserves even in the most politically unstable places.

The United States Energy Information Administration has ranked Argentina fourth behind Russia, the United States and China in the world, with technically recoverable shale oil reserves of 27 billion barrels. And it ranks Argentina second after China in potentially recoverable shale gas reserves, with 802 trillion cubic feet. But as in many countries outside the United States, shale development in Argentina had progressed at a snail’s pace until now because of resistance and regulatory uncertainty. Local opposition among environmentalists and Mapuche Indians remains fierce.

“This is the worst form of extracting oil by the company with the worst record,” said Enrique Viale, the president of the Argentina Association of Environmental Lawyers, who took part in a protest of thousands against the agreement with Chevron in August when legislators were voting on it. Some buildings in Buenos Aires, the capital, remain covered in anti-Chevron graffiti. A rap video on social media in Argentina excoriates the authorities for working with Chevron.

Despite all the friction, Chevron took the leap a year ago with a tentative partnership agreement with YPF, the Argentine oil company that is now controlled by the government, to help develop part of Vaca Muerta. In control of a third of the field, YPF is also preparing agreements with several other companies including Bridas Corporation, a venture including the China National Offshore Oil Corporation, or Cnooc.

Chevron initially plans to invest $1.24 billion for the drilling of more than 100 wells, and if all goes well, the Chevron-YPF venture would drill an additional 1,500 wells by 2017, requiring more than $17 billion in investment. That could raise production to 50,000 barrels of oil and three million cubic meters of gas a day over 35 years.

Few companies have had the moxie to wager so much since Argentina defaulted on its $81 billion sovereign debt in 2001. President Kirchner renationalized YPF last year, and has yet to compensate the Spanish oil company Repsol any money for its controlling interest, which Repsol says was worth $10.5 billion.

Pointing to these challenges, Miguel Galuccio, the chief executive of YPF, insisted in an interview that the future of Argentina’s economy depends on YPF’s ability to develop the nation’s shale oil resources.

Surprising critics of Mrs. Kirchner who expected her to politicize YPF, as her government had done with other state-controlled companies, Mr. Galuccio seems to have taken a different approach. He has hired respected managers and petroleum engineers, many of them Argentines who were living abroad, to fill YPF’s top ranks. And he has begun to reverse a decline in YPF’s production, repositioning the company to focus on fracturing in Neuquén which he argues will not jeopardize local water supplies.

In the interview, he lauded Chevron for its partnership with YPF, saying he was well aware of the risks, including Chevron’s legal battles in Ecuador, which persist. “This brings a level of complexity I’d like not to have,” he said. “We need more Chevrons in Argentina.”

Facing a potential financial crisis, the Argentine government reversed course on energy policy in recent months as it has often done in the past.

It is now allowing companies to sell gas at a higher fixed price, and in a move especially for Chevron, Mrs. Kirchner recently issued a decree allowing oil and gas companies to sell 20 percent of their production abroad without paying export taxes or obligations to repatriate profits — as long as they invest more than $1 billion in the country.

Still, Chevron faces enduring problems in Argentina, highlighted by pressure from the country’s most influential journalist, Jorge Lanata, an outspoken critic of Mrs. Kirchner who has been attacking Chevron’s record in Ecuador.

Soon after Chevron and YPF signed their initial deal in 2012, two lower courts threatened the arrangement by freezing part of Chevron Argentina’s assets in the country so they might eventually be sold to pay the Ecuadoreans who are suing Chevron.

Lawyers representing Ecuadorean Amazon Indians won a judgment in a local Ecuadorean court ordering Chevron to pay more than $18 billion in damages for the dumping of toxic waste into a vast area of Amazon jungle by Texaco in the 1970s before it was acquired by Chevron years later. (Chevron insists that Texaco cleaned up its area of operations and subsequent pollution was caused by PetroEcuador, the state company that once partnered with Texaco.)

Since Chevron has no assets in Ecuador, the plaintiffs are trying to collect on the judgment in Canada, Brazil and Argentina, where Chevron subsidiaries have significant holdings.

When the case reached the Argentine Supreme Court, Mrs. Kirchner threw her support behind Chevron despite the lobbying of President Correa of Ecuador, an ally who has publicly declared that the oil company is an enemy of his country. Her attorney general filed a brief with the court arguing that the Ecuadorean judgment could not be enforced against Chevron Argentina since the subsidiary could not defend itself in the Ecuadorean proceeding, warning that the Supreme Court needed to act to avoid “irreparable and irreversible harm to essential national interests.”

The Supreme Court agreed with the government in a June decision, opening the way to the final Chevron-YPF agreement signing in July. But lawyers for the Ecuadorean Indians say they are not finished in Argentina.

The lawyers said that the Supreme Court decision was merely a technical problem that could easily be corrected by returning to the Ecuadorean courts in the coming months to file a petition seeking to execute the original judgment against Chevron Argentina and possibly other foreign subsidiaries. Once they succeed, they say, they will demand that Argentine courts accept the Ecuadorean judgment under reciprocal legal treaties.

“I am certain the case is still alive in Argentina, of course,” said Pablo Fajardo, the lead Ecuadorean lawyer. “I believe the Supreme Court in Argentina made a mistake and should correct it. I have confidence in their judges.”

Kent Robertson, a Chevron spokesman, responded: “They have demonstrated they can get whatever they want in Ecuador. It doesn’t mean they can collect. There has been no trial against Chevron Argentina.”

Argentine oil officials said that the Chevron-YPF deal will shield the American company from financial loss connected to a change in the political winds. After the company invests $1.2 billion, 18 months later it can withdraw from operations without penalty and continue to receive net profits of 50 percent of the production from the initial wells in perpetuity.

Mr. Moshiri of Chevron said he was not focused on the Ecuador case. “That’s a separate issue unrelated to what we are doing in Argentina and in the Vaca Muerta,” he said. “We are just going to continue with our business. Chevron Argentina has nothing to do with it.”

Still, the legal battle is just one of the obstacles that both companies face.

“We’ll continue our fight to defend the land, the water and the air,” said Lefxaru Nahuel, 26, a Mapuche in Patagonia who has been leading protests. “With fracking, there is no future for us here.”

Simon Romero reported from Neuquén, Argentina, and Clifford Krauss from Houston. Jonathan Gilbert contributed reporting from Buenos Aires.

Signs point to exploration areas in the Vaca Muerta, or Dead Cow, a field in the Patagonian desert that Chevron hopes will be the next great shale oil field.