Deepwater's Latin America comeback
Upstream Research Senior Analyst, Latin America
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Deepwater is making a comeback. Latin America has been at the centre of the revival, boasting 40% of the world’s deepwater reserves and some of the strongest pre-FID project economics.
Since 2015, Brazil and Guyana have been the focal point of activity in the region. As the site of some of the most exciting discoveries over the last few years, the Guyana basin is firmly established as one of the world’s exploration hotspots. And by 2025, Brazil will produce a third of global deepwater volumes.
Eager to profit from the region’s success, top companies are flocking to pick up acreage across the basin and along the wider Equatorial Margin in the search for the next big discovery.
Deepwater exploration is inherently high-risk. Which companies have deep enough pockets to take on those risks, and what are the main challenges explorers in Latin America will need to overcome?
The Americas will receive a lot of attention this year. Latin American plays account for one third of global large and giant prospects scheduled for drilling in 2019. This region will also see one third of the potential play-opening wells.
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Majors dominate in the search for the next big discovery
As fields get deeper and increasingly technically challenging, deepwater is predominantly the realm of the Majors. 74% of the projected US $250 billion of pre-FID spend is expected to come from just eight companies.
However, as the industry becomes more efficient, we expect more players to be attracted by the huge potential for future discoveries. Diversity of ownership is already emerging in Brazil – after five bidding rounds in 2017 and 2018, pre-salt exploration acreage ownership is more diverse than it has ever been.
The search for the next Liza
The Liza Complex is one of the largest and best deepwater projects in the world. A winning combination of attractive fiscal terms, resource scale and reservoir quality drive Liza’s world-class returns, making it comparable with the best the pre-salt has to offer in Brazil.
Liza’s success has encouraged further exploration as companies eager to profit from the next big discovery flock to the wider Equatorial Margin. The area represents a quarter of all of Latin America’s offshore exploration acreage. There are 42 companies present, including most of the Majors and many leading independents.
Learning from Brazil: tackling slow-ramp up time
Brazil's pre-salt boasts impressive well productivity. The country has led with a series of successful licencing rounds after adjusting its local content policies (Link to media release: https://www.woodmac.com/press-releases/brazil-lc-rules-impact/_). These adjustments lay the groundwork for faster FPSO deployment and production ramp-up, and ultimately unlock further growth in Brazil’s deepwater industry.
As a result of the changes, we predict that Brazil's discovered resources could sustain a production capacity of 5 million barrels per day (b/d) by the mid-2020s, in comparison to a production plateau of 3.7 million b/d under the old local content commitments.
Gas monetisation delays progress
Developing a monetisation solution for associated gas is top-of-mind for players in Brazil right now and is having a significant impact on pre-salt time to first oil.
The lack of gas infrastructure can significantly delay project progress. Commercial solutions for gas monetisation can take years to develop and require investment. For now, there is no long-term solution.
On our recent webinar, we talk infrastructure improvements, project economics, cost inflation and more. Access the recording for the full discussion.