Decommission or redevelop? Brazil's mature Campos basin oil fields await resurgence

Brazil’s Campos basin is awaiting a resurgence in production according to a new report by Wood Mackenzie, "Brazil’s mature Campos basin oil fields: decommission or redevelop?" whichfound that redeveloping the basin's mature oil fields could extend the life of the basin and add more than 200,000 barrels of oil equivalent per day (boe/d) to its declining production by 2025.

Since the early 2010s, pre-salt discoveries in Brazil's Santos basin have dominated international headlines, drawing investments from some of the largest oil companies in the world, including ExxonMobil, Equinor, Shell and Total. Today, Santos is the top producing basin in Brazil, accounting for 50% of the country's oil and gas production.

For nearly four decades prior, with Petrobras at the helm, the Campos basin held this top spot. Over the past decade however, as the basin has matured, investments by the NOC have decreased prompting a drop in drilling activity and production decline rates in the double digits.

Luiz Hayum, research analyst with Wood Mackenzie's Latin America upstream oil and gas team, and lead author of the report, said: "As more productive plays have been discovered over the past decade Petrobras' investment focus has shifted away from Campos to the more prolific Santos basin, leading to the early cessation of production in many Campos fields and the decommissioning of 32 platforms over the next decade."

According to the analysis, without further investment, most fields in the basin will be decommissioned by 2025 at a cost of US$8 billion. However, investing the US$8 billion in the redevelopment of these mature fields, starting in 2019, could add  230,000 boe/d by 2025 and postpone 60% of the decommissioning costs to post-2030.

"The potential is even greater if technologies perfected in other regions are successfully deployed in the Campos basin," Mr Hayum added. "According to our analysis, if recovery factors in the basin were increased to similar levels of analogue fields in the US Gulf of Mexico and the North Sea, an additional five billion barrels of oil could be recovered."

Several actions are already being taken to redevelop these mature fields, the report notes. They include 4D seismic to identify bypassed oil pockets, infill drilling, water flooding optimization and increasing platforms water handling capacity. Moreover, future use of EOR techniques can bring additional upside to production.

A technical collaboration is underway by Petrobras and Equinor in the Roncador oil field in the Campos basin to use infill drilling and 4D seismic to extend the life of the field. According to Wood Mackenzie's analysis, the successful deployment of these technologies will extend the economic life of the field by eight years and add 500 million barrels of oil equivalent to the field's reserves – increasing the NPV10 by US$1.6 billion.

"Drilling these new wells is economic and a proposed royalty reduction from 10% to 5% for mature fields undergoing redevelopment could further incentivise activity," Mr Hayum said. "The royalty reductions could also increase returns of these wells by 3 percentage points on average."

The Majors and large independents aren’t the only ones who stand to benefit from the redevelopment of these mature fields. "The Campos basin's smaller shallow-water resource opportunities, which are too small for Petrobras or the Majors, present a great opportunity for small-cap operators," Mr. Hayum noted.

In the US Gulf of Mexico and the North Sea, Majors and large independents are moving away from mature shallow-water fields to more lucrative deepwater assets, opening the space for smaller operators.

"In the US Gulf of Mexico Shelf, private equity (PE) backed operators and small private and public companies are playing a larger role," said Mr Hayum. "In Brazil we're beginning to see the same trend. Several PE-backed companies are currently negotiating with Petrobras the acquisition of its Campos basin shallow-water assets."

Furthermore, there is considerable upside for the Brazilian government if operators pursue the redevelopment path vs. decommissioning. According the analysis, redevelopment of the Campos basin's mature fields could generate US$3 billion of additional royalty collected and generate 30,000 additional jobs by 2025.