CERA

Advisory
Service

Southern Cone Energy Global Oil

Brazils Subsalt
Discoveries
A Complex Path to First Oil Production
Decision Brief

CERA

An IHS Company

About the Authors

Peter M. Jackson, CERA Senior Director, Oil Industry Activity, is a widely respected authority on
oil and gas production and upstream development. He combines expertise with practical experience in
some of the worlds most important production areas. At CERA he is responsible for global oil capacity
outlooks worldwide. A major component of his research is examining current trends and challenges in
productive capacity and reserves distribution as well as forecasting which areas will become a focus
for exploration and production (E&P) industry investment over the next ten years. He was principal
author of CERAs 2007 report Bumpy Road AheadGlobal Liquids Capacity to 2017. His most recent
paper, Finding the Critical NumbersWhat Are the Real Decline Rates for Global Oil Production?, was
an important contribution to understanding the future of oil supply. He has also played a major role in
developing CERAs new E&P Trends Forum. Dr. Jackson has 22 years of E&P experience with what were
Britains two leading independent oil companies, Britoil and Enterprise Oil, as a geologist and manager.
With Enterprise he was President and General Manager of Enterprise Oils Gulf of Mexico business,
where he gained extensive experience with deepwater development. He served as Chief Geologist for
Enterprise, responsible for the worldwide view of prospects and development, during the period that
Enterprise was the worlds largest independent oil company. He also gained extensive knowledge of
E&P projects while working in the United Kingdom, Indonesia, and Italy. Dr. Jackson holds a BSc from
St. Andrews University and a PhD from Edinburgh University.
Sylvie DApote, CERA Associate Director, has 15 years of experience as an energy economist and
for over 10 years has focused on Latin American energy issues. She specializes in South American
natural gas sector developments, with particular expertise in supply-demand dynamics, regulatory
issues, gas market integration, cross-border pipelines, and gas-power convergence. Prior to joining
CERA Ms. DApote managed her own consulting company, Prysma E&T Consultores, based in Brazil,
carrying out projects and studies in the areas of energy policy and planning, gas and power market
analysis, and corporate strategy. Previously Ms. DApote was Head of the Latin American Program
with the International Energy Agency (IEA) in charge of monitoring and analyzing Latin American energy
issues, including market trends for oil, gas and power, as well as energy policies and regulation. She
is the author of South America Gas: Daring to Tap the Bounty and contributed to several other IEA
publications. Ms. DApote previously worked as an energy consultant for the WEFA Group, in London,
specializing in coal and power, and for the Organisation for Economic Cooperation and Development in
Paris. She holds an MSc from the University of Rome, La Sapienza, and an MSc from Imperial College,
University of London.

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Brazils Subsalt Discoveries: A Complex Path to First

Oil Production
Key Implications
Brazils upstream is emerging as one of the more important long-term growth areas for world
oil resources and production. The potential scale of the discoveries that have been made in the
subsalt play in Brazil is prompting much discussion about the likely impact and the future role of
these resources in the international oil markets. Already, Brazils energy authorities and politicians
are considering possible changes to the upstream regime (including to the fiscal terms), with
important consequences for future investment in Brazils upstream sector and the pace of activity.
But is the timing right?
Large-scale development and production of the subsalt play will face major challenges, and success
hinges on key near-term decisions:
Defining the scale. Limited appraisal (and even more limited well testing) of the play and its
complex geology leaves room for major surprises to both the upside and the downside.
Prioritization and timing. Development of the discoveries will require major personnel,
service sector support, and capital resources. Petrobras already has a world-class inventory
but faces the enviable task of rebalancing its portfolio following such large-scale additions
from the subsalt.
Choosing the right legal and fiscal framework for the new discoveries. Brazilian authorities
are already considering a wide range of options, from restricting access to international
and private company investment in the subsalt, to increasing government take orless
likelymaintaining the status quo. Each one has different implications for future upstream
development in terms of timing and investment patterns.
A major exporter. Existing fields and new projects assure Brazil of oil self-sufficiency in the
medium term. With Tupi onstream Brazil could export as much as 1.5 million barrels per day,
but not before 2017 at the earliest.

2008, All rights reserved, Cambridge Energy Research Associates, Inc.

55 Cambridge Parkway, Cambridge, Massachusetts 02142.
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CERA Decision Brief

Brazilian Subsalt Discoveries: A Complex Path to First

Oil Production
by Peter Jackson and Sylvie DApote*
Redefining the Playing Field
Brazils upstream sector is getting much bigger. The Tupi discovery in 2006 demonstrated
that the Santos Basin subsalt might be a major oil and gas province in its own right. Since
then, further wells in the adjacent blocks show that the Brazilians have unlocked a major
world-class play (see the box Milestones and Expectations: Tupi and Other Discoveries).
The discovery of Tupi, a major technological achievement, has launched a new era for
Brazils oil industry. The exploration program in the Santos Basin has so far yielded eight
discoveries and one successful appraisal well (see Table 1). These discoveries have confirmed
Petrobrass leading role in deepwater activity globally and its commitment to further develop
its technical capabilities to be a leading world-class energy company (see Table 2).
There is limited data about the discoveries to date; only a handful of wells can be used
to calibrate the sizes of the discoveries, and some of these wells have not been fully
evaluated. Reported resource volumes must be considered very preliminary. Even with a
full suite of formation evaluation results for each well, the reserves estimates would only
Milestones and Expectations: Tupi and Other Discoveries
The subsalt fairway of the Santos Basin extends along the Brazilian coast some 800 kilometers
(km) from the state of Esprito Santo in the North down to Santa Catarina. The prospective
area is up to 200 km wide in water depths of up to 3,000 meters (m). In November 2007
Petrobras announced the completion of formation tests at the Tupi discovery, an ultradeepwater
accumulation in the subsalt play of the Santos Basin (see Figures 1a and 1b). Currently being
evaluated by a joint venture between Petrobras (operator), BG, and Galp Energia, Tupi has
estimated recoverable reserves at between 5 and 8 billion barrels of medium gravity crude oil
(2830 degrees API) with a high gas-oil ratio (1,100 to 1,200 standard cubic feet per barrel).
Jpiter, the gas and condensate discovery in block BM-S-24 announced in late January 2008,
has been described as potentially similar in size to Tupi. Another recent announcement reinforces
the view of significant potential in the subsalt play: drilling in the BM-S-11 block (Iara) has
confirmed the discovery of a significant find of light oil in the subsalt layer with an estimated
recoverable resource of 3 to 4 billion barrels.
Discoveries have also been made at Carioca, Caramba, Bem Te Vi, Parati, and Guara, but
resource estimates are speculative at best. Additional undrilled prospects such as Sugar Loaf,
Iguaco, and Ogum are located toward the south of Tupi and appear to cluster around a massive
base salt structure. The looming block expiration dates and the inability to mobilize additional
drilling units in the near future have resulted in Petrobrass not testing either the Carioca or
Bem Te Vi wells. Instead, it has preferred at this stage to drill untested prospects in the area
to meet license commitments and retain as much acreage as possible. The perception of high
value in the unallocated acreage in the immediate area also caused the reframing of the ninth
licensing round earlier this year.
*In collaboration with Carla Maria de Souza e Silva.

September 2008
2008, Cambridge Energy Research Associates, Inc.
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BM-S-011,
Block 1

BM-S-009,
Block 2

BM-S-021

BM-S-008

BM-S-024

BM-S-009,
Block 1

BM-S-011,
Block 2

Tupi

Carioca

Caramba

Bem Te Vi

Jpiter

Guar

Iara

1-RJS-656 (1-BRSA-618-RJS)

1-SPS-055 (1-BRSA-594-SPS)

1-RJS-652 (1-BRSA-559-RJS)

1-SPS-052A (1-BRSA-532A-SPS)

1-SPS-051 (1-BRSA-526-SPS)

1-SPS-050 (1-BRSA-491-SPS)

1-RJS-628A (1-BRSA-369A-RJS)

1 RJS 617D (1 BRSA 329D RJS)

Discovery Well

24 May 08

27 Mar 08

9 Dec 07

25 Oct 07

17 Sep 07

4 Apr 07

30 Sep 05

1 Jan 05

Spud Date1

ongoing

ongoing

Jul 08
3

18 May 08

10 Dec 07

Jul 07

4 Oct 06

Jul 07

End
Drilling
Date

8 Aug 08

Discovery

Discovery

Discovery

25 Jan 08
13 Jun 08

Discovery

Discovery

Appraising

Appraising

Appraising

Status

6 Mar 08

3 Dec 07

7 Aug 07

10 Jul 06

22 Jul 05

Discovery
Announced2

Source: IHS, Cambridge Energy Research Associates, Petrobras, ANP.

Notes: In addition, drilling is expected to start at the end of September 2008 in block BM S 022, adjacent to block BM S 009.
1. Spud: start of the well drilling operation.
2. Discovery reported to the regulatory agency ANP.
3. Deepening at this well started on 21 July 2008 and is ongoing.

BM S 010,
Block 1

Contract

Parati

Discovery
Name

Santos Basin Subsalt Discoveries

Table 1

2,230

2,141

2,187

2,138

2,239

2,135

2,126

2,038

Water
Depth
(meters)

6,225

6,137

5,618

6,773

5,350

6,668

6,000

7,628

Total
Depth
(meters)

Oil, gas

Oil, gas

Gas,
condensate

Oil

Oil, gas

Oil, gas

Oil, gas

Oil

Hydrocarbon
Type

CERA Decision Brief

2008, Cambridge Energy Research Associates, Inc.

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September 2008

CERA Decision Brief

Table 2
Santos Basin Blocks with Subsalt Discoveries/Potential:
Ownership Structure
Discovery
Bidding
Name
Contract
Round
Operator
Parati
BM-S-010, Block 1
2
Petrobras 65%
Tupi
BM-S-011, Block 1
2
Petrobras 65%
Carioca
BM-S-009, Block 2
2
Petrobras 45%
Caramba
BM-S-021
3
Petrobras 80%
Jpiter
BM-S-024
3
Petrobras 80%
Bem Te Vi
BM-S-008
2
Petrobras 66%
Guar
BM-S-009, Block 1
2
Petrobras 45%
Iara
BM-S-011, Block 2
2
Petrobras 65%

BM-S-022
3
Exxon 40%

Other
Partners
BG 25%, Partex 10%
BG 25%, Galp Energia 10%
BG 30%, Repsol YPF 25%
Galp Energia 20%
Galp Energia 20%
Shell 20%, Galp Energia 14%
BG 30%, Repsol YPF 25%
BG 25%, Galp Energia 10%
Amerada Hess 40%,
Petrobras 20%

Source: IHS, CERA, Petrobras, ANP.

September 2008
2008, Cambridge Energy Research Associates, Inc.
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CERA Decision Brief

be approximate at this stage as there has been insufficient appraisal activity to develop a
complete understanding of reservoir characteristics over such a large area, and still less an
understanding of the dynamic behavior of the reservoirs.
Despite this uncertainty, the National Petroleum Agency (ANP), the industry regulator, and
other Brazilian analysts indicate that the entire subsalt play could hold up to 56 billion
barrels of oil equivalent (boe) resourceson a par with the total for the UK portion of the
North Sea. At 5 to 8 billion barrels the Tupi field would be twice as big as the Roncador
field in the Campos Basin, which is the largest Brazilian field developed to date (see
Figure 2). Indeed at this scale Tupi would be the largest field discovered since Kashagan
in Kazakhstan in 2000.
Changes to Brazils upstream policy are in the cards. The improvement in prospectivity
may lead to amending fiscal terms for existing as well as new licenses. The scale of the
discoveries and the resulting call for personnel, equipment, and services will affect local
content policies, employment prospects and the ability of the Brazilian services industry to
compete for exports. It will also have an impact on the oil import/export status of Brazil
4

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CERA Decision Brief

itself. Expectations in Brazil and among importing nations regarding the scale of the new
reserves and future oil export volumes are high. But if history is any guide, this could be a
roller-coaster ride. Appraisal results are likely to include both negative and positive surprises.
An undertaking of the scale proposed to develop these new resources may well be hit by
cost and schedule overruns, especially with todays pressures on personnel, equipment, and
services in the E&P sector.
A Road map for Future CERA Studies and Reports
This Private Report lays out a road map for subsequent CERA reports and research that will
examine the challenges and opportunities arising from the exploitation of Brazils subsalt
play, including analyses of
The regulatory and fiscal framework for the subsalt discoveries. The Brazilian
government is considering changes to the current exploration and production (E&P)
regulatory framework, at least for the acreage included in the subsalt play. Various
options are currently under discussion and will have different impacts on the pace of
the sectors development and on Brazils economic and social development. CERA
will evaluate the opportunity, compared with other emerging provinces, for Brazil to
retain the maximum economic benefit including the benefits and risks of fiscal and
legislative changesproduction-sharing agreements versus concession agreements,
nationalization, and the fiscal load that can be borne by the subsalt developments.

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CERA Decision Brief

The technology opportunity. The development of the subsalt resources will require
major technological innovation and many first-of-a-kind solutions. This may provide
opportunity for Brazil eventually to become a significant exporter of energy-related
equipment and services based on the critical mass it could develop. CERA will evaluate
the likely learning curves and their impact on program implementation, technology
leverage, and other issues.
The timing and investment requirements. The subsalt discoveries will require a staged
development approach and large-scale investments. CERA will assess the supply chain
implications in terms of capital, personnel, services, equipment, and other parameters
(versus Brazils current and future execution capacity both in quantity and quality).
The associated gas challenges. While oil reserves will provide the main driver for
development, the associated gas reserves in the subsalt play will offer additional
opportunities and challenges. CERA will analyze the various technical alternatives
and challenges for marketing the subsalt gas. We will also analyze through a scenario
approach the possible outlooks for a natural gas balance in Brazil and in the region.
The impacts on global oil supply. Although Brazils liquid productive capacity
may expand significantly above current expectations, the scaling back of investment
plans elsewhere may affect the rise in global output resulting from the discovery of
this giant new oil and gas province. CERA will analyze the oil capacity outlook for
Brazil and its contribution to global supply, including the potential offsetting impact
of reprioritization of Petrobrass (and other companies) investment plans.
Possible Changes to Upstream Legal and Fiscal Terms
The goals surrounding potential policy changes to Brazils upstream are similar to those of
opening the Brazilian upstream sector in 1997: increased upstream investment and revenues
and the benefits of economic growth such as improved health care, better education, and
greater employment opportunities. This time around, however, the stakes are larger, and the
choice of development model for the oil and gas sector in Brazil will need to be considered
in terms of its possible impact on development of Brazils hydrocarbon resources, and on
the subsalt play in particular. For example, it may seem superficially attractive to reserve the
high potential subsalt play for Petrobras as a national champion. However, this might raise
legal concerns. More likely, if the subsalt is to be reserved for a national player, it would
result in a new, wholly state-owned company. CERA understands that such a company would
be the right holder for the government interest and could then contract for the exploration
and development of the resources (perhaps along the lines of Argentinas Enarsa; Indonesias
Pertamina in its early days; or, as an alternative, of Norways Petoro). This approach could
allow the benefits of diversity of approaches and execution capacity that the involvement
of international companies might bring. This is especially true given the very tight markets
for people and hardware (including rigs) in which costs are escalating worldwide.*

*See the CERA Special Report Capital Costs Analysis ForumUpstream: Market Review.

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CERA Decision Brief

It is instructive to compare the rates of production buildup from Brazil and the US Gulf of
Mexico in water depths greater than 1,000 m. The reserve bases are broadly comparable,
but the latter grew faster and higher, in part because of the diversity of approaches and the
associated innovation (see Figure 3).
Some signs of change in Brazil appeared even before the more recent announcements of the
success in the subsalt play. The offer of fewer but more focused new frontier and mature areas
in the formerly suspended eighth round possibly hinted at future changes in Brazilian upstream
policy. However, the obvious turning point was the governments decision to withdraw the
most attractive areas of the ninth bid round soon after confirmation of the possible scale of
the Tupi discovery.* Tupi triggered an immediate debate about the application of the current
upstream model to the high-potential subsalt trend. In the meantime the ANP has postponed
the tenth licensing round until the situation is resolved. A ministerial committee is studying
the legal and regulatory reform proposals for Brazils upstream sector in light of the new
subsalt discoveries. The committee will make a preliminary report on September 25, before
handing its recommendations to President Luiz Inacio Lula da Silva on September 30.
The ultimate outcome of this debate is difficult to gauge. The successful results obtained
in the ninth round coupled with further successes in the subsalt play will likely push the
Brazilian government to modify the upstream fiscal terms.** The debate is between those
that desire more state control of the resources and those that believe radical changes could
*See the CERA Insight Brazils Ninth Bid RoundOr What Is Left of It.
**See the CERA Insight A New Face for Brazils Oil Sector? Lessons from the Ninth Bidding Round.

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CERA Decision Brief

undermine needed investment. Petrobras already has a major investment program involving
an impressive portfolio of domestic and international developments, but it has stated that it
will repatriate much of its talent to focus on the development of Tupi and its satellites in
the subsalt. It will take some time to readjust priorities to design and execute the optimum
outcome for Petrobras and Brazil. However, such realignment may constrain the positive impact
on global production expectations since investment in the subsalt will be at least partially
offset by compensating reductions in investments elsewhere in the Petrobras portfolio.
In any case Petrobras, like other oil and gas companies, is already facing challenges in
bringing existing projects onstream. Delays of one or two years have been fairly common,
particularly with some larger Campos Basin projects. A decade ago, delays of up to a year
and cost overruns of around 25 percent were typical for megaprojects.* Today, the escalation
of costs and shortage of suitable rigs, yard space, and skilled people have combined to
exacerbate the situation globallyand Brazil is not immune.
Lessons will no doubt be learned from recent operational setbacks in some Gulf of Mexico
projects, and Petrobras has a clear history of developing solutions to new and challenging
problems. The cost base of the Brazilian subsalt developments is expected to lie between
$20 and $30 per boe. This implies breakeven prices of more than $60 per boe after taking
into account the time value of money and the fiscal burden. There will be pressure not just
to prevent continued cost escalation but also to reduce these figures. Open source approaches
have typically proven to be more effective accelerators than monopolies, and innovation is
a numbers gamefive independent research centers investing $200 million each are more
likely to come up with an answer than one center investing $1 billion. For example, decoding
the human genome benefited from the number of different competitors in the race and
was achieved far more quickly than even the most optimistic forecasts.
Even if Brazil does not consider a significant change in the sectors legal and regulatory
model, it is at least reconsidering its fiscal terms. Resource-rich countries must decide how
they benefit more from high prices for their resources. For example, if oil production makes
up a significant proportion of gross domestic product (GDP), then the damage that high oil
prices cause to the nonoil GDP may be small compared to the boost that high oil prices
provide. On the other hand, if oil production is only a small portion of the economy, high
oil prices may cause more damage to non-oil GDP than the benefit of higher oil prices
warrants.
Prior to the subsalt discoveries, the Brazilian economy probably fell into the latter category
high oil and gas prices would be a net negative. With the potential scale of the new oil
and gas resource base, there is probably not yet an incentive to limit oil sector activity in
order to maximize prices nor sufficient drivers to infect the Brazilian economy with Dutch
Disease (generally referring to the harmful effects to other sectors of the domestic economy
from sizeable revenue from a single commodity export industry). CERA will analyze the
level of fiscal take that the sector can bear. Upside ambitions must be weighed against the
negative impact that changes will have on Brazils reputation for stability, which has made
Brazil an increasingly favored location for investment, and on the pacing and timing of
investment.
*Source: Independent Project Analysis Inc., 2003.

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CERA Decision Brief

CERA will be examining the impact on the Brazilian economy of increased levels of activity
in the oil and gas sector and the relative contribution that the sector can make. Based on
the cost and investment projections from the scenarios that CERA will develop, we will
evaluate the impact of different fiscal regimes and sector development models. This will
provide an indication of the impact on economic development for Brazil arising out of the
newly increased endowment.
Conquering New Frontiers: The Technology Opportunity
Subsalt E&P activity is not unusual in the oil industry. Significant volumes of gas in northwest
Europe are produced from horizons underneath salt. In the Gulf of Mexico major new subsalt
plays have been opened up over the past decade as companies began to develop techniques
for shooting and interpreting seismic to resolve structures beneath thick salt layers. In Brazil
pilot oil production has already started from the subsalt in the Jubarte field in the Esprito
Santo Basin to the north of the new discoveries (see Figure 1b).
However, these new discoveries mark major advances in technological innovation. At Tupi
drilling through a 2 km thick salt layer presented significant challenges that are being
overcome as experience develops.* Furthermore, the dolomitic reservoir will likely be
complex and difficult to characterize. The initial well was drilled to a total depth of 6,000
m and produced 2,900 barrels per day (bd) on test through a restricted choke; expectations
are that production wells could flow as much as 10,00020,000 bd.
The development of Tupi and other subsalt discoveries will face many important challenges,
including,
Reservoir characterization. Definition of facies and determination of vertical and
lateral reservoir attributes from well and seismic data. Evaluation of reservoir drive
mechanisms and feasibility of gas and water injection.
Flow assurance. Control of paraffin deposition in long pipelines, as well as hydrates,
and scale.
Well engineering. Execution of high deviation of the wells, slow penetration rates,
hydraulic fraccing of horizontal wells, and materials selection to deal with the high
carbon dioxide (CO2) content.
Gas handling. Laying and operating a gas pipeline larger than 18 inches in water
depth of 2,200 m over long distances (300 km) or alternatively other commercialization
approaches, including liquefied natural gas, gas-to-liquids, offshore power, and
others.
Subsea engineering. Riser design for 2,200 m of water, and dealing with high pressures,
high CO2 content, and thermal insulation.

*The discovery well at Tupi cost $240 million, yet subsequent wells in the area have been much less expensive, and
Petrobras has an ultimate, ambitious target closer to $30 million each.

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CERA Decision Brief

Floating production facilities. Mooring in water depths of 2,200 m, riser interfaces

and the potential for floating platforms with well access (SPAR; floating, drilling,
production, storage, and offloading platforms).
Several of these challenges may require first-of-a-kind solutions, while others will rely on
lessons learned from other developments that have overcome such challenges. However,
homegrown solutions to any of these challenges could provide an opportunity for ultimate
export of equipment and services in much the same way that other developing hydrocarbon
provinces have provided the foundation for a thriving export market.
CERA will be examining the technical issues raised by the subsalt play and the ways in
which technology will be deployed and leveraged. Depending on the policy decisions that
the Brazilian government takes, the center of gravity of the global ultradeepwater industry
could return with opportunities for Brazil to become a major player.
Timing and Investment: The Supply Chain Challenge
The apparent scale of the resources will, in common with most giant fields, result in a
phased approach to development. Indeed, based on its experience in Campos Basin, Petrobras
has already drawn up a staged development strategy for Tupi and other subsalt discoveries
along the following lines:
Phase 1 will be an extended test using one well tied back to a floating production,
storage, and offloading unit with oil exported by shuttle tanker. This will allow the
operator to evaluate the long-term flow potential of future development wells and
provide a model of the characteristics of the reservoir over a larger area than has
been evaluated to date.
Phase 2 will be a pilot scheme involving five production wells, which will produce
up to 100,000 bd, with two water injector wells and one gas injector well starting
up in late 2010. This will test the viability and impact of injecting water or gas in a
larger-scale development.
Phase 3 will be the initial full field development using a large-scale floating production
facility with approximately ten wells and gas export infrastructure producing up to
200,000 bd and 200 million cubic feet (MMcf) per day soon after 2013.
Phases 4 and above will involve five to ten floating production units to produce up to
1 million barrels per day (mbd) of oil and 1,000 MMcf per day of gas after 2015. This
phase will be a massive undertaking in terms of drilling requirements and construction
of facilities and will require many years to implement.
The announced timetables for implementing each phase of the development are aggressive
and may be driven as much by policy as by logistic or technical considerations. Historically,
around the world, however, overly accelerated schedules have been a recipe for cost overruns
and, somewhat ironically, schedule delays. One wild card that might hold up progress is
the possibility of field unitizationthe division of interests in a field that crosses license
boundaries owned by different consortia. The current lack of data and the higher levels
10

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CERA Decision Brief

of further appraisal required to determine the ownership interests in such potentially vast
accumulations could impose significant delays on the development program if any field is
found to extend beyond the boundaries of current licenses.
It is impossible to be precise about the scale of these new discoveries, but there are
several indications that Petrobras has a high level of confidence that it has discovered a
major new resource. Firm plans for the phased development of Tupi have been reported as
summarized above. Additionally on May 20, 2008, Petrobras, in a press release along with
government support, announced it was tendering for 40 deepwater and ultradeepwater drill
ships and semisubmersibles and 24 support vessels to be delivered through 2017, indicating
a commitment of approximately US$30 billion.
CERA will be preparing an assessment of the overall investment requirements for a range
of possible outcomes in the subsalt play that will include the supply chain implicationsthe
call on personnel, services equipment, capital, and other elements. Viewed in conjunction
with current and projected capacity in Brazil, this analysis will provide a picture of the
challenges that Brazil faces.
Dont Forget about Natural Gas
Amid the focus on the expanding oil potential, there has been a significant addition to
Brazils gas resource base that may alter the prospects for natural gas imports not only for
Brazil but for the whole Southern Cone. Indeed, gas reserves from Tupi alone could amount
to 4.5 trillion cubic feet (Tcf), an increase of 22 percent over Brazils current proved and
probable reserves of 20.4 Tcf. If the Jpiter gas condensate discovery is confirmed to be
around the same size as Tupi, assuming 5 boe, Brazils current proved and probable gas
reserves could well double. Even without considering Jpiter, the gas output of Tupi alone,
which could reach 1,000 MMcf per day after 2015, would be sufficient to replace the whole
of Brazils imports from Bolivia.
However, the path for gas development is probably more technically complex than that
for oil. The marketing of the gas in the subsalt play will require innovative solutions and
probably high costs, due to the depth of the accumulations and the distance from the coast.
Various options are already being evaluated in addition to a traditional subsea pipeline or
to reinjection: offshore liquefaction and offshore large-scale power generation. CERA will
analyze the various technical alternatives and challenges for marketing the subsalt gas. We
will also examine the consequences for regional gas balances resulting from Brazils growing
gas resource base.
Taking It with a Grain of Salt: Possible Outlooks for Global
Supply
The results of the early exploration program have been positive. But data are sparse and
incomplete, and caution must be exercised until more appraisal wells are drilled and
production test data become available. A comparison with Brazils Mexilho field, also in
the Santos Basin, is a good example of how problematic initial reserve estimates can be on

September 2008
2008, Cambridge Energy Research Associates, Inc.
No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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CERA Decision Brief

both the upside and downside.* Announced in April 2003 at 2.5 trillion cubic feet (Tcf),
Mexilhos reserves were revised upward to 14.8 Tcf in September 2003, after just three
wells were drilled. In the following years Mexilhos reserves have been gradually revised
downward to around 6.1 Tcf.
Even before the announcement of the likely scale of Tupi field resources, Brazil was
already expected to lead productive capacity expansion in Latin America over the next five
years.** In the longer term Brazils position will become even stronger, supported by the
new discoveries. At its plateau the Tupi field could produce around 1 mbd, which represents
56 percent of current Brazilian oil consumption. By 2020 the subsalt play could contribute
significantly to Brazilian net oil exports, which are expected to reach 1.5 mbd (see Figure
4). While fields currently in production will continue to decline there is a large inventory
of new projects under development and under appraisal outside the Santos Basin subsalt
play that will compensate.
With Petrobras holding an interest in every significant component of Brazilian capacity growth,
the decisions that it makes will be critical. As noted above, Petrobras may repatriate many
of its experts from international operations to support the increased effort offshore Brazil.
The future capacity profile will depend on the overall capital investment program. As part
of our research into global oil productive capacity, CERA will be evaluating the outlook for

*See the CERA Alert Santos Basin Gas Find May Triple Brazilian Reserves.
**See the CERA January 2008 Latin America Energy Watch The Strategic Risks of Oil in Latin America: Geopolitics
Shape Investment Flows.

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September 2008
2008, Cambridge Energy Research Associates, Inc.
No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

CERA Decision Brief

Brazil. However, in addition, we will be examining in detail the net effect on oil supply of
the subsalt discoveries and the complex interactions among investment priorities.
Conclusion: A Need for Measured Enthusiasm?
The subsalt play may have reset the bar for the Brazilian upstream in terms of potential
resources, complexity, and the future scale of production. Uncertainties remain concerning
field sizes and likely long-term reservoir performance since Petrobras is still at the early
stage of exploring and appraising the area. The number of discoveries in the subsalt play
provide strong encouragement, but there is a long way to go. Major investment will be
required before material volumes of sustainable production can be established. Like most
giant fields being developed today, these fields will be developed in multiple stages requiring
increased levels of skilled personnel, equipment and services, and major capital resources.
While Petrobras will likely be able to build on its world-class deepwater operational skills,
it already has a world-class inventory of both domestic and international assets that will
compete for these scarce resources. The result may be that the net impact on future oil and
gas production is not as large as currently expectedeven if Brazils share of the global
total increases.
In the event that further major discoveries are announced, Brazil will likely need to decide
whether it is better to become a major exporter or to slow the pace of development, at
least for now, given the difficulties with managing oil rents in a constructive way. Although
Venezuela and to some extent Mexico continue to be textbook cases for Dutch Disease,
Brazils large and diversified economyand the size of its populationshould help it escape
that fate.*
Nevertheless, an overly optimistic expectation of a windfall from subsalt production could
lead to some policy changeswith the aim of taking advantage of the huge revenues to be
gained at current high oil prices. Despite the considerable potential unfolding in the Santos
Basin subsalt play, a complex spectrum of above- and below ground risks is already apparent,
and likely changes in Brazils upstream model are already being consideredquite possibly
a source of delay, especially in the context of the existing Hydrocarbons Law, which took
four years to materialize.
CERA will address each of these key issues in a series of future reports: the oil sector
regulatory model, including the benefits and risks of legislature and fiscal changes, the supply
chain and challenges, the technology leverage and the opportunity for Brazil to become a
significant exporter of energy-related services, and the impact on global oil supply and the
regional gas balance.
Brazils upstream sector is expandingbut how big and how quickly? Much will depend on
how Brazil and Petrobras respond to the challenges. Whatever the answers, the subsalt play
offshore Brazil will be a continuing focus for the oil industry during the coming decade as
this major new province moves from discovery to development. n

*See the CERA Private Report Hydrocarbon-fueled Regional Leadership: Is It Sustainable?

September 2008
2008, Cambridge Energy Research Associates, Inc.
No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent.

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