FILE PHOTO: The logo of Exxon Mobil Corporation is shown on a monitor above the floor of the New York Stock Exchange in New York, December 30, 2015. Standard & Poor’s Ratings Services said on April 26, 2016, it had cut Exxon Mobil Corp’s corporate credit rating to “AA+” from “AAA,” citing the impact of low oil prices. REUTERS/Lucas Jackson/File Photo/File Photo
February 14, 2022
By Sabrina Valle
HOUSTON (Reuters) – Exxon Mobil Corp has bet billions of dollars on offshore drilling in Brazil, an area it once abandoned and now sees as key to its future.
But five years into its comeback, the U.S. oil giant has yet to make a major oil discovery as an operator in Brazil’s waters and has let opportunities to buy into developments that are now gushing oil slip through its fingers, Reuters has learned.
Exxon last year drilled two exploratory wells in an area located 120 miles off Brazil’s southeast coast, the company has acknowledged. But wells in those blocks – dubbed Opal and Tita – didn’t show enough potential to justify installing a platform, according to two people familiar with the results. The drilling license fee for the Tita block alone cost the company about a half-billion dollars, Brazilian government records show.
Exxon hasn’t moved ahead with so-called appraisal wells in those areas, additional drilling that’s a prerequisite for understanding the extent and size of any oil accumulation in preparation for production, the people said.
The company declined to comment on its prospects at Opal and Tita.
There’s been more bad news from another block – Uirapuru – in which Exxon holds a minority stake. Brazil’s state-controlled oil firm Petrobras, the lead operator, notified Brazil’s oil regulator ANP on March 31, 2020 that the petroleum findings were also insufficient to justify further investments.
Exxon told Reuters that hydrocarbons were found at another block it’s exploring in a 50-50 partnership with Petrobras as lead operator about 120 miles off Rio de Janeiro. Exxon said drilling at a well dubbed Mairare was completed in August and data was still being analyzed to determine how to proceed.
Such struggles are common in the oil business where developing big discoveries can take years. But there is pressure for Exxon to succeed in Brazil, one of three geographic areas the company is counting on for most of its future production. The other two – Guyana and U.S. shale country – are performing well and ramping up quickly.
But the company’s Brazil strategy so far has underwhelmed despite Exxon spending $4 billion with partners on drilling rights there over the past five years. During that time, Exxon has gone from a bit player to participating in 28 offshore leasing blocks – 17 as lead operator – covering 2.5 million net acres. That’s second only to the offshore territory controlled by Petrobras.
Meanwhile, Exxon has spurned deals in other offshore zones in Brazil that are producing like gangbusters.
The company twice prepared final contracts to bid on discovered reserves put out for public auction by Brazilian authorities, but passed at the last minute, according to four people familiar with the situation. The first pullback occurred in 2019 in a field called Buzios, and most recently in December in another called Sepia, the people said. Petrobras was already producing in both fields, and would have remained as lead operator, with Exxon taking a 45% stake in a bigger reservoir, the people said.
But Exxon balked for fear of overspending on assets in which Petrobras would control the size and pace of development, the people said. Combined the two projects would have required more than $40 billion to develop, the people said.
That’s a pile of cash. Still, those two blocks already are producing almost 1 million barrels per day of oil and gas. In December, Buzios alone was producing 739,000 bpd, according to ANP. That’s more than the entire country of Venezuela averaged last year. Petrobras plans to ramp up Buzios production to nearly 2 million bpd this decade.
“After carefully reviewing the opportunity, we decided not to participate” in the Buzios and Sepia auctions, spokesperson Meghan Macdonald said without elaborating.
Publicly, Exxon has been nothing but bullish on Brazil. In its most recent earnings report, it characterized Brazil as one of its “highest-quality growth projects”.
Last year it committed to investing 40% of the $8 billion https://www.reuters.com/business/energy/equinor-exxon-develop-8-bln-brazilian-oilfield-2021-06-01 needed to develop the Bacalhau offshore field, a project led by Norwegian oil firm Equinor ASA. That field is set to deliver Exxon’s first oil from Brazil in 2024.
Exxon has also registered with ANP for another drilling lease auction scheduled for April. “We are excited about the future in Brazil,” Exxon Brazil chief Juan Lessmann said at an offshore conference last August in Houston.
Some analysts aren’t persuaded.
“What is next for Exxon in Brazil is a big question mark, but with a negative trend so far” said Marcelo Assis, head of Latin America Upstream for energy consultancy Wood Mackenzie. “If Exxon had made a relevant discovery (in its Opal and Tita drilling) they would have disclosed it by now.”
RARE EXPLORATION FLOP
Exxon’s first big foray into Brazil’s offshore fields ended last decade with failure in one of the world’s largest oil discoveries this millennium.
In 2005, it was the only international oil major that held licenses in the so-called pre-salt, a vast petroleum formation under a thick layer of salt in the Atlantic seabed. The oil-rich region twice the size of Manhattan would vault Brazil among the world’s Top 10 oil producers and reap riches not only for home-grown Petrobras, but foreign companies including Europe’s Equinor and Shell PLC.
Exxon, meanwhile, studied seismic images for a couple of years, selected promising spots and spent more than $300 million on complex, time-consuming drilling. The result was three dry holes, the first in 2009, followed by two more in 2011.
In 2012, Exxon returned its block to the Brazil government and tried a different strategy. It became a minority partner in a group of blocks operated by OGX, an oil company founded by Brazilian commodities mogul Eike Batista, who promised to turn it into a “private Petrobras.” Within a year, OGX was in bankruptcy and it ultimately halted operations. Batista would later be convicted in Brazil for market manipulation for dumping OGX shares before the company collapsed.
Batista couldn’t be reached for comment.
Exxon moved to the sidelines following that episode as well as a change in rules by the leftist Workers’ Party that gave Petrobras first dibs on pre-salt discoveries.
EXXON RETURNSBy 2017, however, Exxon was back and on a buying spree, snapping up blocks after a new government made Brazil’s oil sector more attractive to foreign investors.
Pre-salt fields currently account for 70% of Brazil’s total production of 3.7 million barrels per day of oil and gas – the same as Exxon’s global output. Some 5.5 million bpd of oil and gas are expected by 2025, according to ANP.
But nothing is guaranteed in these tricky formations. The year before Exxon started drilling again, signs of trouble had emerged in a neighboring offshore field.
There Shell and its partner Chevron Corp came up empty after spending some $800 million on licenses and drilling. Shell said it found little more than water, according to a June 2020 filing with the ANP seen by Reuters.
The consortium is analyzing the results of the 2020 exploratory well and has yet to define the next steps for the project, Shell told Reuters.
It was much the same with Exxon’s Opal and Tita wells. In a Nov. 4 filing with the ANP, the company said it found hydrocarbons, but they were insufficient to justify a drilling platform, according to a person familiar with those results.
Exxon is now awaiting an environmental permit to drill in another frontier area hundreds of miles north of the first two wells and away from the pre-salt, according to the ANP.
“The era of big discoveries in the pre-salt is behind us,” ANP head Rodolfo Saboia told Reuters in December.
(Reporting by Sabrina Valle; editing by Gary McWilliams and Marla Dickerson)
Source: One America News Network
