June 2016
Oilfield Technology
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do not generally hold any assets in Argentina, or navigate in Argentine
controlled waters).
Venezuela
According to the EIA, Venezuela has 298 billion bbls of proved
oil reserves, the largest in the world, exceeding Saudi Arabia
(268 billion bbls) and Canada (173 billion bbls). Venezuela also has,
arguably, the most dysfunctional oil sector in all of South America.
Under its former leader, President Hugo Chavez, several major
projects in the prolific heavy oil belt were nationalised, PDVSA’s
geoscience and engineering corps were purged, and the national
oil company’s coffers plundered. Production fell from a high of
3.5 million bpd in 1999, to an estimated 2.6 million bpd in 2014.
PDVSA’s current difficulties highlight the calamity unfolding in
the O&G sector. Financial statements for 2015 note that PDVSA’s total
financial debt stood at US$43.9 billion, and debt to suppliers stood at
US$20 billion. Moody’s downgraded PDVSA’s credit rating, citing a higher
probability of default or debt restructure in the next twelve to eighteen
months due to low cash generation and a lack of visibility regarding the
company’s investing and refinancing plans.
In a scramble formore cash, PDVSA is abandoning energy agreements
madewith neighbouring countries. Under former president Hugo Chavez,
Venezuela agreed to supply crude and refined product at reduced prices.
Payment could be delayed for up to two years, ormet via barter. Uruguay,
Jamaica and the Dominican Republic have been constrained to buy
shipments on the spotmarket tomake up for shortfalls.
Because Venezuelan petroleum is dominated by heavy crude
from the Orinoco belt, the country has been importing lighter crudes
and condensate to blend with its output. International cash flow from
crude sales, which has dropped almost US$40 billion since the fall in
commodity prices, has meant late payments fromPDVSA. Several oil
suppliers are now requiring prepayment before discharging shipments.
Shell, Statoil and Total are among suppliers who delivered 13 cargoes
at the Bullenbay terminal on the island of Curacao during 2015; several
ships were significantly delayed by payment disputes. Venezuela’s crude
is in demand from refineries in the Gulf Coast region, however, and BP
and China Oil have been arranging swap deals of refined products in
order to access the heavy oil for export.
PDVSA’s problems extendwell beyond the financial realm. In late 2015,
theUS Justice Department charged Roberto Rincon, a Venezuelan resident
residing in Texas. Officials allege that Rincon and others conspired to pay
bribes in order to arrange contractswith PDVSA. Between 2009 and 2014,
several millions of dollarswere paid to PDVSA officials in order to obtain
work and services valued at over US$1 billion. One of the conspirators
and three PDVSA officials have pled guilty so far. TheUSDepartment of
the Treasury also alleges that PDVSA has launderedUS$2 billion in funds
through an Andorran bank. Opposition politicians state that corruption in
the state firmmay have costs Venezuelans up toUS$10 billion.
Not all is bleak; Rosneft, Russia’s top oil producer, is heavily involved
in joint ventures with PDVSA in the Orinoco belt in an effort to turn
production declines around. Early in 2016, Rosneft and PDVSA also set up
a JV to develop Venezuela’s offshore natural gas potential. Three fields
will produce approximately 9 billionm
3
annually, enough to feed an
export pipeline or LNG project.
Brazil
Brazil is both blessed with natural resources and cursed with greed and
corruption. Thanks to the immense resources of the offshore subsalt
play, Brazil’s output has risen to 2.25million bpd and 2 billion ft
3
/d of gas.
Hardly amonth goes by without an announcement of a new
discovery. In early 2016, new exploratory wells confirmed that the
Carcara presalt discovery extends well beyond original boundaries.
The initial prospect well, drilled in 2012, encountered 400mof
continuous light oil. The latest well, called Carcara NW, encountered oil
with a similar pressure profile 5.5 kmnorthwest of the first well. Although
recoverable oil estimates for Carcara have yet to be published, there is
little doubt that it will add significantly to recent discoveries. According
to federal authorities, of all the oil discovered around the world in the
last five years, 36%, or 23 billion bbls, has been found in Brazil.
In addition, much headway has beenmade in bringing the
subsalt play into production. In early 2016, the Lula Alto area of the
Lula Field, situated in the Santos basin presalt, entered production
when the
Cidad de Marica
FPSOwas anchored in 2120mof water.
The vessel is connected to 10 production wells, and has the ability to
produce 150 000 bpd. This is the fifth FPSO installed in the field; in all,
Petrobras now produces over 1million bpd frompresalt.
Yet Petrobras is in serious financial difficulties. The company
reported a 2015 net loss of US$9.7 billion, up froma US$6 billion loss
in 2014. Petrobras has over US$130 billion in debt, and has slashed
its budget and shed approximately 1500 non-operational managerial
positions. It will also sell core and non-core assets worth US$15.1 billion,
including part of its stake in the huge Libra offshore prospect.
In addition, the company is hobbled by a serious corruption and
kickback scandal. For over a year, federal investigators have been
uncovering amassive scheme of chicanery that reaches up to the highest
levels of government. As of late 2015, 87 people, including two former
Petrobras directors, have been formally accused of offering and accepting
approximatelyUS$800million in bribes and other inducements by inflating
Petrobras contracts and funnelling part of themoney back, including to
the rulingWorkers’ Party. Most recently, a federal judge sentenced Jorge
Zelada, a former director of Petrobras international division, to 12 years in
prison after finding himguilty of money-laundering and corruption.
Themess is having a domino effect within the sector. Moody’s
has downgraded Petrobras to junk status, which denies the company
access to international credit markets where it needs to raise over
US$100 billion to develop the subsalt play. Its annual R&D budget has
dropped fromUS$40 billion in 2013 to US$19 billion in 2016. Local
contractors under investigation cannot seek new deals with Petrobras;
many are going under because of unpaid bills.
No one knows how the situationwill end; prosecutorswere given
Supreme Court permission to investigate senior politicians and promptly
brought former-president Luiz Inácio Lula da Silva in for questioning. Even
the current President, Dilma Rousseff, has not escaped unscathed: she
is currently suspended fromofficewhilst impeachment proceedings are
carried out. In early February, aManhattan judge ordered Petrobras to face
class-action litigation from investorswho are seeking to recoup billions
in losses due to the bribery and political kickbacks scandal. They claim
that the company inflated its value of its stocks and bonds bymore than
US$98 billion.
Various steps are being taken to rectify Brazil’s dysfunctional O&G
sector. In late February, federal lawmakers introduced legislation that
would remove requirements that Petrobras hold at least 30% interest in
presalt blocks, and be the sole operator of presalt development projects.
Themove is seen as a response to lack of international interest in presalt
licensing, and the scandal woes that are hindering Petrobras’ ability to
take on further operational duties.
Conclusion
Clearly, much still needs to be done to promote O&G in Latin America,
but industry observers are taking heart in the concrete steps that are
being taken by nations such as Mexico and Colombia. The current oil
price slump is depressing activity, but international investors are well
aware that the region remains one of the brightest stars in the O&G
firmament.
