Professor Cleveland M. Jones, DSc. (left), and Professor Hernani Aquini Fernandes Chaves, DSc.

Part 2: Report from Peter Howard Wertheim and Dayse Abrantes, in Rio de Janeiro, Brazil, based on papers and interviews with Professor Cleveland M. Jones, DSc., and Professor Hernani Aquini Fernandes Chaves, DSc., geologists. For Scandinavian Oil-Gas Magazine (Oslo, Norway).

Assessment of yet-to-find-oil in the Pre-salt area of Brazil By Professor Cleveland M. Jones, DSc. and Professor Hernani A. F. Chaves, DSc. Geologists familiar with the Brazilian marginal basins of Campos and Santos technology, used better resolution of features below thick salt layers.

In year 2000, pre-salt exploration blocks were included in the second Brazilian bidding round conducted by ANP (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, the Brazilian oil regulatory agency).

The Professors applied an exploration modelling tool (GeoX® software, from Schlumberger) and a stochastic simulation method (Monte Carlo) for estimating the potential accumulations discovered and remaining to be discovered in that region which attracted much attention since the first major discoveries were confirmed by Petrobras, in 2006. For the last ten years, discoveries in the region have ranked among the largest in the world.

Steps of their work (published in the 14th International Congress of the Brazilian Geophysical Society, in Rio de Janeiro) include establishing the order of discovery of known accumulations (Discovery Sequence), determining the size distribution for those discoveries (Field Size Distribution – FSD), estimating the number of possible accumulations of economic interest, quantifying the geological uncertainties, and conducting simulations of the individual accumulation assessments. Probabilistic results are first produced for all individual accumulations considered in the area of study, including existing discoveries and postulated accumulations. All individual assessments are then combined, using Monte Carlo simulations, in order to build the overall assessment parameters.

Scandoil – What is your opinion about the policies of the new Petrobras administration that took over last February?

Example of geological assumptions used for assessing individual accumulations

Professor Jones – As to the direction that Petrobras is now headed, I am quite against the path set by its management, which has taken the understandable, conventional route of slimming down in order to improve financial metrics. Let´s face it, given the current mess that is Petrobras, the major attraction to investors can only be its future potential, not its current operations. Any decisions that reduce that potential by scaling back plans for major projects that would grow production in years to come are absolutely against the interest of its investors and shareholders. Petrobras should choose to maintain its prior aggressive investment program, even at the expense of having to divest other assets with less growth potential, such as its major producing but maturing fields in Campos Basin, such as Marlim and Roncador.

Scandoil – Considering that with such low oil prices and decreasing investments due to lack of financial resources, most oil companies, internationally, with all due respect we do not think that IOCs or NOCs would really be interested in divestment of assets such as mature Campos basin, which still produces most of the oil and gas in Brazil. How do you envisage Petrobras post-scandal? Smaller, more efficient?

Professor Jones – That is not what Petrobras, with government backing, has decided to do, so we are indeed headed for a smaller company, and not more efficient, since even without corruption it is a bureaucratic entity. 

Scandoil – Petrobras says it extracts oil from the pre-salt at USD 9 per barrel compared with foreign companies that extract at USD 14. Do you agree? If yes, what type of technology does Petrobras have that allows it to extract oil from ultra deep waters at that price?

Professor Jones – As to supposed Petrobras cost advantages in lifting costs in the pre-salt, I am quite sceptical. I do believe that its costs are as low as Petrobras claims, even close to the lifting costs of Saudi fields, which have risen significantly in recent years, so that Petrobras can claim to be in the same league. But I see no evidence that other operators would be less efficient if they were to be allowed to be operators in the pre-salt. That claim seems to be mostly an unfounded argument to prevent changes in the current regulatory framework, which mandates Petrobras to be the sole operator of pre-salt fields. Ironically, that is against Petrobras´ own interests, as Statoil learned, when similar regulations were in place in Norway. Unfortunately, the discussion has been framed by an ideological discussion, which will make any changes difficult.

Scandoil – Petrobras says that its production records in the pre-salt (at present around one million boe/d or about one third of the company’s total oil production, is mostly due to innovative technology. What is you opinion?

Professor Jones – Regarding production technology, Petrobras does indeed have leading edge technology that it developed alongside its service and equipment suppliers, not entirely by itself, of course. That technology is mostly based on engineering feats that come from the steep learning curve that applies when operating in completely new environments, such as the pre-salt. The various technologies that have been implemented in developing and putting new fields into production will lead to significant production increases, as projects in the pipeline come to fruition. Pre-salt production is likely to continue to ramp up, and should become the major portion of Petrobras oil production in the next few years.

Unfortunately, pre-salt successes have come, and will continue to come, at the expense of a drastic redirection of scarce investment resources away from its conventional, post-salt fields in the Campos Basin, for example. There, its flagship fields are experiencing dramatic production declines, even 10% per year, as Exploration and Production Director Solange Guedes, who has a petroleum engineering PhD., recently announced, far larger than would be expected even from such maturing fields.

Scandoil – What is your opinion about Petrobras utilization of recovery technologies in mature fields?

Professor Jones – There is no doubt, despite claims to the contrary, that Petrobras is neglecting investing in maintenance and enhanced oil recovery efforts in these fields. Such investments can sustain production, delay production declines, or even achieve production increases, by applying relatively well-known techniques that are quite effective in such maturing fields. For Petrobras, the choice of where to put its scarce investment resources is clear. One has to look no further than the major pre-salt fields, such as Sapinhoá and Lula, where production rates have reached 40,000 bopd and more. Such productive fields naturally lower the costs of production involved, at least while such rates last, which may be up to some years. As long as Petrobras has projects such as these that it can put into production, there is no reason to put any resources elsewhere.

Scandoil – How do you explain that Saudi Arabia, America's ally, decided not to cut its production of oil to hike prices? It had to do with rising shale oil American production? What is your opinion about this?

Professor Jones – Regarding my thoughts on Saudi Arabia, I am on record as saying that we are witnessing a structural crisis, not a short-term price oscillation, as happened in 2008-2009.

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Part 1: Evaluation of Yet-to-Find (YTF) Oil in the Pre-salt area of Brazil

Part 3: Petrobras Step by Step Assessment of Pre-Salt Plays

Part 4: Bright Future Trends

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Peter Howard Wertheim and Dayse Abrantes can be reached at peterhw@frionline.com.br