Latin American nations struggle to weather crude price declines,
raise output
Houston (Platts)--5Jan2015/514 pm EST/2214 GMT
The new year finds Latin American oil producing nations strapped for
cash at a time when a cache of important new finds require significant
capital outlays for development. Production declines in recent years
have taken a bite out of the region's revenues, making matters worse.
The first of a two-part Platts outlook on Latin America details what
producing countries are doing to weather the current industry down cycle
and position themselves for a hoped-for recovery.
ARGENTINA
Among the world's largest nations for shale potential, Argentina is
attracting global majors, helped by 2014 oil reform that is calming
concerns about a shaky economy and profit-damping public policies.
Chevron made the first bet, teaming with state-run YPF in 2013 on a
$16 billion shale development project to drill more than 1,500 wells
that would produce 50,000 b/d of crude and 3 million cu m/d of
associated natural gas. By the end of 2014, they were producing 35,000
b/d of oil equivalent from Vaca Muerta, the country's largest shale
play.
Others have followed. Malaysia's Petronas has teamed with YPF on a
three-year, $550 million shale oil pilot in Vaca Muerta to start in
2015, while Shell and Total plan $250 million-$300 million of investment
in their first shale efforts. This comes after conventional oil and gas
production dropped 20% in the past decade as price controls, unstable
regulations and restrictions on sending profits out of the country
soured investment.
The decline led to a surge in energy imports and an energy policy
turnaround. The government cut export taxes, allowed energy prices to
rise, and reformed oil policies to provide tax breaks, longer field
licenses and other incentives.
Industry group Argentine Oil and Gas Institute estimates the energy
sector needs $20 billion/year of funding in the next two decades,
including $10 billion-$12 billion in upstream. But with the economy in
recession, inflation at 40% and global oil prices down, investment
decisions could take longer.
BOLIVIA
Bolivian President Evo Morales, an ally of Venezuela's Nicolas Maduro
and Ecuador's Rafael Correa, has acknowledged his country will see some
negative fallout for Bolivian gas from the knock-on effect of dropping
oil prices. As a result, state-owned YPFB has reduced investment plans
for 2015-2019 to $2.42 billion/year, from $3.03 billion booked for 2014.
Analysts point to a weakness in exploration for new fields.
Output in 2014 averaged around a record 63 million cubic meters/day,
according to government officials.
While gas revenue stands to fall, the oil price slide helps to support
the competitiveness of Bolivian gas compared with Brazilian offshore oil
and shale production in Argentina.
BRAZIL
State-run oil company Petrobras started to reap the fruits of its
ambitious investment spending in 2014 as crude oil production rose
throughout the year. But tumbling oil prices and an ongoing corruption
investigation could mean big changes for the company in 2015.
Petrobras said in November it expects output to grow 5.5%-6% this year
from 2013's 1.931 million b/d. That will be the company's first
significant output growth since 2010, although down from the 7.5% target
set at the start of 2014. Driving output growth are subsalt fields --
billions of barrels of crude trapped miles below the seabed by a thick
layer of salt.
Latin America's largest country produced a record 2.393 million b/d in
October, according to the latest data from Brazil's National Petroleum
Agency ANP. Subsalt fields accounted for 607,149 b/d in October. Output
should continue growing in 2015 as Petrobras and its subsalt partners
ramp up production from the 10 new production facilities installed over
the past two years.
But financing the $221 billion in spending planned for the next five
years to raise output to 3.2 million b/d by 2018 could be difficult this
year. Petrobras has delayed filing up-to-date financial statements while
it evaluates the impact of an alleged bribery and kickback scheme
revealed by former downstream director Paulo Roberto Costa, who
testified Petrobras was bilked out of billions. The company needs to
resolve law enforcement investigations and shareholder lawsuits in
Brazil and the US related to the allegations.
Petrobras officials said the company will weather the storm by cutting
costs, raising product prices and increasing crude oil and natural gas
output. Startup of the Refinaria do Nordeste refinery should also slash
about 100,000 b/d in product imports.
Oil majors looking to enter or expand in Brazil will get an opportunity
to buy new acreage in first-half 2015, when ANP hosts its 13th round of
new exploration and production concessions. Blocks up for bid will focus
on the Eastern Margin of Brazil's Atlantic Ocean coastline.
COLOMBIA
Colombia's oil panorama, one of the global industry's brightest in
recent years, turned gloomy in 2014 and odds are against sunny skies
returning in 2015 if the current lower price trend holds firm.
Leading players Ecopetrol and Pacific Rubiales Energy announced cuts to
2015 capital investment of 25% and 40%, respectively, an indication of
reductions across the board. A majority of the 37 members of the
Colombian Petroleum Association polled recently said they would divert
part of their budgets from Colombia to other countries, mainly Mexico,
where the geology and regulatory framework is perceived as more
inviting.
Lower investment translates into fewer wells and ultimately lower
production. Exploratory wells drilled in 2015 probably will mark a
decline from the 110 drilled in 2014, which was a drop from 115 in 2013
and 131 in 2012.
After output nearly doubled from 2005 to 2013, when it averaged
1,007,000 b/d, Colombian production declined in 2014 to 990,000 b/d and
caused big headaches for a government that relies on oil royalties and
taxes for 20% of its budget. No mega-discoveries of oil have been made
since the early 1990s, and crude reserves are in decline when figured as
years of inventory. The finance ministry projects a rebound in 2015
crude production to 1,030,000 b/d, which may be overly optimistic given
oil price and capex scenarios.
--Starr Spencer,
starr.spencer@platts.com and staff reports
--Edited by Kevin Saville,
kevin.saville@platts.com
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