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According to Brazil's National Petroleum Agency (ANP), an amazing offshore Brazil discovery could hold between 8 billion barrels and 12 billion barrels of recoverable reserves, which would make it the most important find for the country to date. This find, the ultra-deepwater Libra field, is located about 105 miles off the coast of Rio de Janeiro, covering approximately 600 square miles in the Santos Basin, with water depths of about 6,560 feet. Furthermore, the Libra is situated near other discoveries made in recent years in the area, such as Lara, Lula, Franco and Sapinhoa fields.
However, what you need to know is that the Libra field's appraisal was made in the very early stages. As a matter of fact, the appraisal of Libra's reserves was based on the drilling of a single well only, which could prove to be inaccurate without any other drilling appraisals. Nonetheless, such vast resources would represent more than half of Brazil's total proved reserves, leaving plenty of room for speculation. Notably, at year-end of 2012, a mere 8% of Brazil's total proved reserves was attributed to the country's onshore production.
An auctioned partnership
On October 21, the Brazilian government held the Libra field for auction, and a consortium of five companies won the 35-year concession. Petrobras SA (NYSE: PBR ) managed to hold a 40% stake in the venture, and will also be the operator. This was more than the minimum required by the terms of Brazil's offer, in which the agreement had to include a mandatory stake of at least 30% awarded to Petrobras. Thus, with this agreement in good standing, the consortium will have to pay a signing fee of $6.9 billion, and according to the ANP, the Brazilian government would receive around three-quarters of overall profits over the lifetime of the Libra field.
The select club
With a major partnership role in this venture, Petrobras is fully integrated across the energy value chain, operating in 24 countries with a daily production of approximately 24 Mmboe in 293 production fields. Furthermore, 96% of Brazilian production is accounted for by the company. Notably, Petrobras is among a privileged group of five integrated energy companies including ExxonMobil, BP, Royal Dutch Shell (NYSE: RDS-A ) and Chevron, with 12.3 Bbboe in proved reserves at year-end 2012.
Also part of the joint venture, Shell was awarded 20% working interest. The major oil and gas producer's expertise in offshore drilling is well known, with several offshore operations worldwide. Notably, the company's major offshore operations include the gulf of Guinea, Australia, Malaysia, the Gulf of Mexico, Russia, Mexico, and Brazil.
Operating already in offshore Brazil area, Shell was a no-brainer to team with Petrobras. As a matter of fact, its ultra-deepwater Parque das Conchas asset, located approximately 75 miles off the coast of Brazil, prepared the company for the daunting task. The Brazilian asset presented several challenges, such as extremely cold seabed temperatures, low reservoir pressure, the forceful roll of the ocean, and shifting sands. Shell had to adapt its technology to bring the field on-stream.
Notably, it installed electric pumps on the seabed to compensate for the low reservoir pressure, designed machines to separate oil and gas directly on the seabed rather than on the surface and developed special umbilical cables to keep the power supply running. Moreover, Shell has even pushed its design technology with pipes that bend, which connected the equipment from ocean to the surface, pipes with the ability of moving with the swell.
In need of other major partners, Total SA (NYSE: TOT ) was awarded 20% in working interest as well, the last two partners included in the joint-venture being PetroChina Company and CNOOC (NYSE: CEO ) with 10% in the remaining stake each. A world-class player in deepwater offshore operating activities, Total owns several assets in the gulf of Guinea, the North Sea and the Gulf of Mexico. Total achieved its first deepwater field as early as 1982, which pioneered offshore drilling development.
Through the years, it developed its technology consistently with innovations such as its "riser towers" that house four production lines to carry the hydrocarbons up, or its innovative epoxy resin foam providing thermal insulation and buoyancy. Furthermore, in 2009, Total launched the world's first deepwater pilot study of polymer water injections on one of its Dalia development reservoirs in Angola, with the objective to improve oil recovery factors significantly.
Finally, with most of its offshore assets in China, CNOOC is one of the largest independent oil and gas producer in the world. It developed its expertise greatly over the years in that field, its exploration program focusing intensively on deepwater exploration. The company has made seven new discoveries this year, as well as appraising 18 wells in offshore China. Furthermore, ten new fields are scheduled to come on-stream in the area, which will boost its production substantially.
Notably, CNOOC's production is growing nicely. The producer recorded total production of 331.8 Mmboe and 342.4 Mmboe for 2011 and 2012 respectively. For this year, it targeted its annual production between 338-348 Mmboe. However, given the current rate of production, CNOOC could possibly exceed the 350 Mmboe mark at year end.
My Foolish two cents
The Libra discovery is, at the least, a very intriguing venture. Can the Libra field really hold more than half of Brazil's total proved reserves? That remains to be seen. However, the newly formed consortium that won the auction was convinced enough to get into the venture, and that bid could very much become one of the best moves in the industry.
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