Auction season: Brazil's oil sector faces its moment of truth

Brazil will stage nine hydrocarbon licensing rounds by the end of 2019 – including three in the next six weeks – as the government attempts to reinvigorate a local sector hammered by corruption, economic turbulence and lower crude prices. Adolpho Souza, the business development manager for Schlumberger Brasil, tells BNamericas how the rounds are likely to impact the oil services industry. 

BNamericas: Do you think the government is taking a risk by holding three major E&P rights auctions at a time when there is so much economic and political uncertainty, in addition to continued low oil prices?

Souza: No. I think it's known and acknowledged by the government that Brazil is competing against other countries with regards to bringing investment into the country. In that sense, I think government and ANP are taking correct measures to create a good investment environment, and the recently approved E&P framework policy reiterates that. The three auctions this year are bringing a diverse portfolio of blocks which can be of interest for all types of players and I personally have good expectations on the outcome. The recently announced list of bidders, including newcomers for round 14, is a good sign that Brazil is again attracting interest from operators around the globe.

BNamericas: Are there any areas in Round 14 that you think are particularly attractive for E&P companies?

Souza: Attractiveness of an area depends a lot on a company's profile and appetite for risk. [Regulator] ANP is offering a diverse portfolio and promoting incentives, for example lower royalties for blocks in new frontier basins that have a higher risk. I would say that areas in Campos and Santos [basins] and traditional onshore basins are the most attractive, as they are basins with proven potential and are easier to monetize in the event of a discovery. However I wouldn't rule out interest in new frontier basins as the additional risk could be compensated by an interesting and sizeable discovery.

BNamericas: What effect will the upcoming licensing rounds have on Schlumberger's business in Brazil in the short term?

Souza: Not a big impact in the short term. I expect that the non-rig related product lines, such as software integrated solutions and seismic acquisition and processing will benefit the most at this stage. It's important to understand that, typically, the exploratory cycle takes two to four years depending on the basin. At the exploration stage, the drilling intensity isn't as high when compared to the development phase.

BNamericas: It is at the development stage that massive investments are made in well construction, subsea and production facilities. There are already some development projects in Brazil that are waiting on better industry conditions to be sanctioned and as an industry we need to look at alternatives to unlock these projects.

I think that the divestment plan recently released by Petrobras has the potential to affect our business in the short term due to our portfolio of services and products, along with our experience in field revitalization projects. Mature fields still have great production potential through existing facilities with the application of new technologies to improve recovery factors. This can also bring back activity to the whole E&P chain, creating jobs and re-engaging the industry for what is coming in the next few years. It is a window of opportunity and we need to take advantage of this.

BNamericas: How is the drilling services contract with Rosneft in the Amazon's Solimões basin progressing? How many wells have been drilled this year and are there any more to come?

Souza: Schlumberger has provided integrated services for the first exploratory well drilled by Rosneft in Brazil. We have decades of experience in operating in that region, which certainly contributed to the execution of this project under schedule and under budget.

BNamericas: Schlumberger recently formed a joint venture with Calgary-based Production Plus Energy Services to distribute a horizontal well production system. Does the company plan to offer this product, or any other production-optimization technology, in Brazil?

Souza: Schlumberger is constantly strengthening its technology portfolio through technology development, M&As or stabilizing strategic partnerships. The JV with Production Plus is an example of the latter. We do have our production group team in Brazil assessing the HEAL technology, which is a system used to mitigate slug and condition flow from horizontal wells. We're mapping potential candidates by types of reservoir and fields. We'll soon be approaching our clients whenever there's a compelling event to do so.