Future Of Brazil's Oil Industry In Serious Doubt

Tyler Durden's picture

Submitted by Nick Cunningham via OilPrice.com,

Oil market analysts keep a close watch on the weekly and monthly production figures from the U.S. EIA, watching for a sign that a contraction in output will help to balance global supply and demand.

There are a few reasons why so much attention is paid to the U.S., rather than other places around the world. First, the U.S. has consistent and reliable data, unlike a lot of other places, which makes analysis easier. Second, the U.S. is the principle culprit behind the collapse in oil prices, as its rapid run up in production pushed supplies well beyond demand. Third, U.S. shale, the source of the recent uptick in supply, rises and falls much more quickly than conventional oil fields, especially large-scale projects such as deep offshore.

Still, it is useful to pay attention to supply changes from outside the U.S. For example, in its November report, OPEC raises a few red flags on Brazil, where a deteriorating economy, a simmering corruption scandal, and a major pullback in the state-owned oil firm Petrobras, could all conspire to cut into Brazil’s oil output.

Brazil’s inflation has jumped to its highest level since 2003, running over 10 percent according to the latest figures. The central bank hiked interest rates to 14.25 percent, the highest in nine years to combat inflation, but so far it has been unsuccessful. Meanwhile, GDP is shrinking, with an expected contraction of 2.2 percent in 2015. And the unemployment rate has hit 7.6 percent, the highest since 2010.

Brazil is expected to increase oil production by 180,000 barrels per day in 2015, hitting 3.04 million barrels per day (mb/d). But 2016 is a different story. Petrobras has been embroiled in a corruption scandal since last year, which has cost the company tens of billions of dollars. Given that Petrobras was already the most indebted oil company in the world, major cut backs in spending were in order.

OPEC sees Brazilian oil production plateauing as soon as next year. That is a pretty significant development considering the fact that, not too long ago, Petrobras thought output would continue rising rapidly through the rest of the decade. But Petrobras is slashing investment in its mature oil-producing assets in the Campos Basin, where much of Brazil’s output comes from. These large fields have steep decline rates, and the losses are starting to show up in the data. OPEC cites the Marlin field, a field that produced 240,000 barrels per day in 2014, but suffered a staggering decline in output this year, dropping 30 percent (although some of that is due to maintenance). Several other significant fields, including Roncador in the Campos Basin, have also posted declines recently, even though, again, Petrobras attributes the slump to maintenance.

 

BrazilProductionGrowth

 

The significant slowdown in capital investment on behalf of Petrobras means that the depletion from maturing fields could at some point overwhelm new production. Brazil increased production this year, but that was because it still had a backlog of new projects coming online. But the project pipeline is drying up. “[D]ue to few Brazilian projects coming online in 2016, remarkable growth is not foreseen,” OPEC concluded in its latest report.

The strike of oil workers in early November impacted at least 450,000 barrels per day of production. Unions are upset about Petrobras’ planned asset sales, which they see as a backdoor move at privatization. Petrobras, desperate to slash its debt burden, sees asset sales as a necessary evil. The work stoppage impacted output at 50 oil platforms. The two sides recently reached an agreement on November 13 to end the strike, which will include a pay raise of 9.53 percent, and the company will also produce a report within 60 days that studies alternatives to cuts in investment. However, it is unclear how Petrobras can turn around its debt situation while still satisfying worker demands to resist spending cuts.

That puts Brazil’s oil future in serious doubt. For years, Brazil and Petrobras hailed the country’s pre-salt fields as a ticket to its elevation on the global stage. To be sure, pre-salt production is slowly ticking upwards. But pre-salt oil fields will only breakeven at $55 per barrel, according to OPEC, despite Petrobras assurances that it can be profitably produced at $45 per barrel. “Some of its most important and highest producing fields may be operating at a loss,” OPEC concluded.

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KnuckleDragger-X's picture

Well they nationalized their oil sector, so the best and brightest are in charge, and they'll catch up with Venezuela in no time.....

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) KnuckleDragger-X Nov 17, 2015 12:55 PM

Wrong Brazilian in the click-bait picture.  Just say'n...

Tom Servo's picture

Click the Printer Friendly Version link, and i think it's a dude...

 

 

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Tom Servo Nov 17, 2015 1:42 PM

Exactly.  Click-bait fail.

yomutti's picture
yomutti (not verified) Tom Servo Nov 17, 2015 1:52 PM

Dude, babe.... in Brazil there is no difference.

 

UnicornSkittles's picture

I thought that was Thailand?

OldPhart's picture

Dammit, Tyler...when you have click bait 'Brazilian' at least include the freakin' picture in the article!

knukles's picture

So how're the interest coverage ratios on all them tranches of that one of the biggest deals ever floated by PetroBras several years ago when they were gonna score unlimited oil from 20 miles 'neath the ocean?
Come on, fess up!  Who out there bought the crap?
Nobody?  Aaaaachk!  Guess the deal never happened and PetroBras won't have to pay interest when due.  No?  Doesn't work like that?

KnuckleDragger-X's picture

Those are just numbers, the elite don't do numbers......

dolbiere's picture

"who bought that crap"? obama did. a 2 billion dollar loan. actually it probably wasn't loan but might have been payback to soros.

CarpetShag's picture

Because PetroBras is the plural of PetroBra.

Pasadena Phil's picture

What utter rubbish. US shale is not the reason for the oil "glut". Without this US production, there would have been an OIL SHORTAGE since legacy oil production has been in decline fo almost ten years! Oil prices would have easily gone north of $150. Our economy was doing just fine with $120 oil. Now it is at $40-44 and we are in a tailspin. I am sure we would be better off with $80 domestic oil and the stabilizing effect it would have on business planning. We can always step back into the global picture once the carnage is over. Or we can export into it and see how they like it.

We are so close to being energy independent we ought to just stop importing oil NOW and let the rest of the world figure out what they want to do regarding helping OPEC and the Russians figure out how dumping oil into "free" markets is a bad idea. Let them choke on their oil when the biggest oil market in the world shuts down for imports.

Then evict all of the Saudi "special visa" residents from the US.

cougar_w's picture

And another global growth engine sputters out.

There is a pattern here. Better get your shit wired up tight, people. Forever is about to devour the human world.

miki's picture

as long as there are tongs on impanema all is well and all will be well

kevinearick's picture

War

Any moron can declare and conduct war. They do it on the playground every day. Ending a war and rebooting the economy is something different all together.

War is the repetition of make-work stupidity. While threatening Portugal and Spain with starvation, an empty threat short of WWIII, France just declared war on ISIS, a make-believe scapegoat, to issue more debt, to delay recognition of the obvious, central bank impotence, denying others the same, in a last-effeminate-man-standing currency war, to the benefit of a queen. That's money.

We have been discussing this nonsense for 8 years, during which time the participating majority could have chosen any one of an infinite number of paths in a different direction, but instead chose to continue arguing their books, getting the governments and Presidential candidates they deserve, arguing their books. The outcome is no accident. And labor is quite prepared, to watch the communists kill each other, until its time to end it.

Economics, as taught in the ivory tower, is the elimination of economic mobility in prelude to war, the only possible outcome, of trying to control the narrative of History, repeating itself. Brilliant.

Of course the stock market, stupid investment on the margin, leveraged by fiat leverage, went up, the whole point. What is crashing and what is needed in a war? It wouldn't be steel, oil and war bonds would it?

Jerry Brown talks incessantly about the environment, selling bonds just like his pop, and which gang do you suppose controls dirty oil in California?

As I said, I will see the State of California in the bond market, and all bonds are war bonds.

If you are a kid, labor doesn't need you in this war. Your job is to get married, have children and go to work, until it's time to reboot the economy. Not every kid went to the oil patch to sit on a drill and talk about diamond bits. Some actually went and learned something about welding, to start a business at home and provide for their families.

The economy is a distribution of distributions of distributions, so the aggregate data is meaningless noise at your position, in the best of circumstances, and tyrannical at worst. Between the self-confirming stupidity at every level of compilation, communicated and followed by the majority over time, projected forward, which is really backward, the only possible outcome is a steady march back into time, favoring stupid. That's like looking in a telescope at things that happened a billion years ago and planning space travel, something NASA does every day, and surprise, it's part of the war effort, working hand in hand with ADM, Bill Gates, and the rest of the morons herding morons around the planet, calling the result productivity.

Funny thing about my pop; he terrified the communists and fascists in the neighborhood, particularly the principals and teachers at my schools, and my mom, bless her heart, eventually sold him out, for a good life for herself, on EEO welfare. I simply preferred the street, and made the US Navy my sandbox. Being the greatest war machine built to date, I happen to know a few things about war machines, and all the monetarists have is their pet theories, repeating History.

I was fortunate, and worked my ass off. My dad developed a business model during the Great Depression and watched WWII first hand, the lesson of which my many brothers largely ignored, as the majority always does. They had the same brains, but my mind was always busy at work, while others were busy flapping their gums.

The Great Depression – denial, anger and depression, locked in positive feedback loops, took so long because that is how long it takes to raise a generation, to choose a different direction, which now leaves the Fed, and all of its followers trapped. The propulsion is there. What you do with it is up to you.

The compiler has operators and operands, and time durations, all of which may be functions, operating within and among atoms, and the electron is not what you were told it is. Zoom in and zoom out, to see it, along with the patterns of creation.

http://www.cosmopolitan.com/politics/news/a33587/tiffany-langwell-baby/ (one of millions). This nonsense has been going on for decades, and as far as labor is concerned, no one has an excuse not to know.

CarpetShag's picture

These oilprice.com blurbs are just too pat and glib for my taste. MSM bootlickers.

Keynesians say the darndest things's picture

Saw the word Brazil and was expecting beautiful Brazilian woman in thumbnail pic. Zero Hedge I am dissapoint