Tupi: Find of the year

Salt Couldn’t Hide Elephant From Explorers

EXPLORER graphic by Rusty Johnson
EXPLORER graphic by Rusty Johnson

You hear it all the time, both within and outside the industry.

All the Big Ones have been found.

There are no more “elephants.”

News from Brazil’s state-owned Petrobras could put the quietus on this kind of talk.

The company recently announced it tested a second well drilled in Block BM-S-11 at its Tupi Field offshore southeastern Brazil in the Santos Basin that indicated reserves of as much as eight billion barrels of oil equivalent for the field. Petrobras’ partners in the field include Britain’s BG Group and Portugal’s Galp Energy.

Energy and industry experts hailed the discovery as the find of the year.

Indeed, Tupi represents the biggest find since the 13 billion-barrel Kashagan Field in Kazakhstan was discovered in 2000. Kashagan, in turn, was the largest field discovery since Prudhoe Bay in Alaska more than 30 years ago. 

The initial discovery well in Block BM-S-11 was drilled in 2006, and a well already has been drilled in each of two neighboring blocks, according to Caio Carvalhal, research associate at Cambridge Energy Research Associates in Brazil.  

By the Numbers

The significance of Tupi’s potential impact on Brazil is best put in perspective when compared to the country’s current reserves, which tally 12 billion barrels, Carvalhal said.

He noted that the added reserves would make Petrobras the third largest company in volume of reserves, behind BP and ExxonMobil. Yet Tupi isn’t necessarily good news for some industry players.

In fact, the Brazilian government quickly made it clear that it’s not particularly interested in sharing with the IOCs – an increasingly common and, some would say, disturbing trend among government bodies holding sway over sizeable reserves.

The day following the early November announcement of the enormous potential at Tupi, the government removed 41 of the most promising blocks from its upcoming auction set for November 27. The auction was open to private companies who had invested considerable time and effort preparing for the event.

In the absence of the premium blocks, Shell and Chevron reportedly made no bids at all.

Tough Days Ahead?

Discovering the oil at Tupi likely will prove to be the easy part.

This is a deepwater subsalt environment, which by definition is costly to drill and filled with unknowns.

Producing and developing the field will require major technology know-how, specialized equipment and deep pockets. Nerves of steel for the participants would help, too.

Water depth is about 7,000 feet, and the field occurs another 17,000 feet subsea under a massive sheet of salt, which is noted for its ability to hinder seismic imaging quality.

On the drilling side, extreme pressures and temperatures can pose huge problems and challenges.

Yet Petrobras is considered to be well up to the task, according to Carvalhal. He noted the company historically has done most of the deepwater drilling in this region as compared to the Gulf of Mexico where several companies are experienced in the deepwater, including the subsalt environment.

Pilot production at Tupi reportedly may begin around 2010. There are guesstimates that as many as 100 wells may be required to develop the field, at a cost somewhere between $50 billion and $100 billion.

Carvalhal noted the initial well at Tupi cost about $240 million and required a year to drill.

Catch-22

Tupi may well be only the beginning when it comes to the region’s potential for subsalt reservoirs, which offer the bonus of prized light crude oil.

“There could be huge reserves in the subsalt offshore Brazil under the Campos, Santos and Espirito Santo basins,” Carvalhal said. “The subsalt could be a whole new play beneath the most prolific basins in the Brazil region, and one with better quality oil.

“The subsalt crude is higher quality, about 30-degree API,” Carvalhal noted. “Brazil has very heavy oil on average, about 16-degree to 17-degree.”

There’s a catch-22 here.

Given the estimated cost to develop Tupi and any future big subsalt finds nearby, it’s crucial that crude prices remain at relatively lofty levels. On the other hand, skyrocketing commodity prices have played a key role in the current labor and construction bottlenecks that are hindering development in proven fields.

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