Brazil Gears Up To Become Fourth Largest Oil Producer

Brazilian Ministry of Mines and Energy (MME) is setting the wheels into motion to launch a programme, which would step up investments in oil and natural gas exploration to promote regional development and foster national production while making Brazil the fourth largest oil producer in the world.

For nearly two decades, South America’s largest economy Brazil has been reaping a tremendous economic windfall from a massive oil boom that kicked off with the first offshore ultra deep-water pre-salt discovery in 2006. The boom nearly collapsed as corruption, mismanagement and malfeasance saw national oil company Petrobras laden with so much debt it was almost forced to declare bankruptcy. 

Since then, industry reforms and rationalization coupled with higher oil prices had reinvigorated the massive fossil fuel boom underway in Brazil, although it nearly faltered for a brief moment when left-wing President Luiz Inácio Lula da Silva assumed power. There are indications that Brazil, regardless of the naysayers, is on track to become the world’s fourth-largest oil producer, which will be a tremendous boon for the economy.

Data from Brazil’s hydrocarbon regulator, the National Agency of Petroleum, Natural Gas and Biofuels (ANP – Portuguese initials), shows that for April 2023, the country pumped an average of 3.1 million barrels of oil per day. That number is almost 1% higher than a month earlier and 5% greater year over year. Total hydrocarbon output for April 2023 amounted to just over 4 million barrels of oil equivalent per day which was 1.1% higher month over month and 4.4% greater than a year earlier. Those numbers represent a modest recovery after a March 2023 slump because of rising industry concerns that Lula will take a more interventionist approach to Brazil’s oil industry. That growth indicates Brazil possesses the potential to become the world’s largest oil producer, especially when it is anticipated the country 2023 will add 300,000 barrels per day, taking production to 3.4 million barrels daily by the end of the year.

During 2022, Brazil was ranked ninth globally by oil production, ahead of Kuwait and behind Iran, lifting an average of just over 3 million barrels per day. Suppose Latin America’s largest economy is to become the world’s fourth-largest oil producer. In that case, it will need to be pumping more than 4.5 million barrels of crude oil per day so as to overtake Canada, which currently holds that spot. Brazil’s energy ministry expects the country will be pumping 5.4 million barrels daily by 2029, which is a whopping 80% higher than the 3 million barrels of oil lifted daily during 2022. Consistent year-over-year growth in hydrocarbon production indicates that Brazil indeed possesses the potential to expand production and become the world’s fourth-largest oil producer.

Another key aspect that will support those plans is Brazil’s copious hydrocarbon reserves. According to the ANP, at the end of 2022, Latin America’s largest oil producer held proven or 1P petroleum reserves totaling 14.9 billion barrels, of which 77% were categorized as pre-salt. There are also 21.9 billion barrels of proven and possible or 2P reserves and 27 billion barrels of 3P reserves, known as proven possible and probable reserves. This illustrates that Brazil possesses considerable hydrocarbon potential and the reserves required to support a significant increase in oil production. Those reserves will keep growing as exploration and development drilling gains momentum, with the Baker Hughes International Rig Count showing 17 active rigs at the end of May 2023 compared to 11 a year earlier.

Such a massive leap in oil output will be driven by expanding pre-salt oil production, which Brazil’s energy ministry believes will eventually be responsible for 80% of the country’s hydrocarbon output compared to around 77% at this time. For that to occur, there must be a significant increase in production which can only occur if energy investment and drilling expand substantially. The energy ministry hopes to stimulate this through a plan called the Potencializa E&P programme, the main tenets of which are to encourage investment in frontier, commercially marginal and mature oil basins. There is also a push to expand spending and activity on onshore drilling in Brazil, with news agency Reuters pointing out that small to medium-sized energy companies planning to invest $7.7 billion in onshore operations between now and 2029.

While Brazil’s national oil company Petrobras will be the key driver of such a massive expansion of production volumes, committing to spending $78 billion over five years, it will take considerable investment and injections of technology from foreign energy majors to achieve that goal. The reasons for this are simple, such a significant expansion of hydrocarbon output must be supported by a solid increase in exploitable reserves and the deployment of enhanced recovery techniques. This includes plans by smaller energy companies to invest $7.7 billion in onshore oilfields in Brazil by 2029, which will broaden petroleum reserves and production.

In January 2023, French supermajor TotalEnergies approved the $1 billion final investment decision, or FID, for Lapa South-west offshore oil project in the Santo Basin, Brazil. TotalEnergies is the operator of the operation, holding a 45% working interest, with partners Shell controlling 30% and Repsol Sinopec the remaining 25%. The project consists of developing three wells to be connected to the Lapa FPSO, which has been operating in the North-west of the Lapa field since 2016. Upon start-up, which is anticipated for 2025, the facility will pump 25,000 barrels of oil per day, lifting overall field production to 60,000 barrels daily.

According to TotalEnergies, the project is a natural fit for its existing Brazilian assets and will boost a key growth lever for the company's pre-salt oil production. TotalEnergies Exploration and Production Senior Vice President David Mendelson stated: “This latest development is an important milestone for TotalEnergies in Brazil that will increase its operated production in the pre-salt Santos Basin, a key growth area for the Company." He then went on to say: “With its efficient engineering approach and synergies with existing facilities, this project illustrates TotalEnergies’ strategy of focusing on low cost, low emissions assets.”

In late-May 2023, TotalEnergies, which holds a 39% interest, and its partners, Petrobras with 30% and QatarEnergy as well as PETRONAS with a 20% interest each, signed a production sharing contract for the offshore Agua Marinha Block. The block is located in the prolific Campos Basin south of the pre-salt Marlim Sul oilfield and was awarded to TotalEnergies in December 2022.

It is believed that the block has the potential to mirror Petrobras’ success with the 2017 Marlim Sul pre-salt oil discovery. TotalEnergies Senior Vice President Exploration said: “The signature of the PSC for Agua Marinha expands our presence in this promising area of the pre-salt Campos Basin alongside our three strategic partners, and we are looking forward looking to exploring the block and drilling the Touro prospect.” 

In early May 2023, Norwegian energy supermajor Equinor announced that it, along with partners Repsol Sinopec and Petrobras had approved the FID to proceed with the $9 billion development of the B-M-C-33 project in offshore Brazil. The operation covers three pre-salt natural gas and condensate discoveries with recoverable reserves of one billion barrels of oil equivalent.

On start-up, which is anticipated to occur in 2028, the operation will pump 565 million cubic feet of natural gas per day, of which, an estimated 88% will be exported. Equinor, which is the operator, holds a 35% working interest, with Repsol Sinopec controlling 35% and the remaining 30% held by Petrobras.

These events demonstrate that Brazil remains an attractive jurisdiction for foreign energy companies despite President Lula's hiking oil industry taxes and the growing risk of increased government intervention. Indeed, while he irked energy majors with the March 2023 introduction of a 9.2% levy on oil exports for three months, investment in offshore Brazil remains strong. As discussed, foreign energy supermajors are continuing to approve billion-dollar projects in the country, which will significantly boost production.

Even Petrobras’ plans to decarbonize operations will have little impact on growing Brazil’s oil production and exports, with the company expecting its oil production to expand by 19% by 2027. For these reasons, the ambitious target set by Brazil’s energy ministry to be pumping 5.4 million barrels per day by 2029 appears achievable.