Sabrina Valle

HOUSTON, (Reuters) – Exxon Mobil Corp (NYSE 🙂 has spent billions on Brazilian offshore drilling, which it had abandoned but sees as a key area for its future.

Reuters learned that the U.S. Oil giant, despite being reborn five years ago, has not made a significant oil discovery in Brazil as an operator and has allowed opportunities to purchase into oil-rich developments slip by its hands.

Exxon last year drilled two exploratory wells in an area located 120 miles off Brazil’s southeast coast, the company has acknowledged. Two people who were familiar with the findings said that wells in these blocks, dubbed Opal or Tita, didn’t have enough potential to warrant the installation of a platform. Brazilian records reveal that the company paid about half-billion dollars for the Tita drilling permit fee.

According to people, Exxon is still not moving forward with the so-called appraisal drilling in these areas. Additional drilling is required in order for Exxon to understand the size and extent of oil accumulations prior production.

However, the company refused to discuss its plans for Opal and Tita.

Exxon has a small minority interest in Uirapuru block, which also received bad news. Brazil’s Petrobras state-controlled petroleum firm, which is the main operator, informed Brazil’s Oil regulator ANP that its petroleum findings also were insufficient to support further investments on March 31, 2020.

Exxon stated to Reuters that it discovered hydrocarbons in another block of exploration, which is part of a 50-50 partnership between Petrobras and Exxon. The location lies 120 miles from Rio de Janeiro. Exxon stated that drilling at the Mairare well was complete in August, and that data is still being analysed to decide how to move forward.

These struggles are not uncommon in oil industry, where it can take many years to make big discoveries. Exxon must succeed in Brazil, which is the third area it is relying on to produce most of its future output. Guyana and the U.S. Shale Country are also performing well, and they’re growing rapidly.

The company’s Brazil strategy is still in flux despite Exxon investing $4 billion over five years with partners to drill rights. Exxon, which was once a small player in the offshore drilling market, has participated in 28 leasing blocks (17 as the lead operator) that cover 2.5 million acres. It is the second largest offshore territory held by Petrobras.

Exxon also resisted offers in Brazil’s offshore regions that were producing as gangbusters.

Four people with knowledge of the situation say that the final contracts were prepared twice by the company to offer the discovery reserves up for auction. But the Brazilian authorities rejected the second attempt. According to people, the first pullback was in 2019, in Buzios. The second occurred in December, in Sepia. The people stated that Petrobras had been producing in the two fields and would have continued to be lead operator. Exxon, however, took a 45% share in a larger reservoir.

The people claimed that Exxon resisted the temptation to spend too much on assets where Petrobras could control development’s pace and size. The people stated that to combine the two projects, it would have cost more than $40 trillion.

This is a lot of money. These two blocks still produce almost one million barrels per hour of oil and natural gas. ANP reported that Buzios had produced 739,000 barrels per day in December. This is more than Venezuela’s entire annual average. Petrobras intends to increase Buzios production by almost 2 million bpd in the next decade.

Spokesperson Meghan Macdonald explained that after carefully considering the possibility, she and her team decided against participating in the Sepia or Buzios auctions.

Exxon’s public statements have been positive about Brazil. It referred to Brazil in its latest earnings report as “highest quality growth project”.

Last year it committed to investing 40% of the $8 billion https://www.reuters.com/business/energy/equinor-exxon-develop-8-bln-brazilian-oilfield-2021-06-01 needed to develop the Bacalhau offshore field, a project led by Norwegian oil firm Equinor ASA (NYSE:). This field will deliver Exxon’s first Brazilian oil in 2024.

Exxon registered with ANP in preparation for a drilling lease auction that will take place April. Juan Lessmann from Exxon Brazil stated, “We are excited for the future in Brazil” at an offshore conference in Houston in August.

Some analysts won’t be persuaded.

Marcelo Assis from Wood Mackenzie’s Latin America Upstream, said that “What’s next for Exxon Brazil?” is still a question mark. However, it has a positive trend. Exxon would have already disclosed a pertinent discovery in its Opal- and Tita-drilling operations if they had.

RARE EXPLORATION FLOP

Exxon’s initial foray into Brazil’s offshore oil fields was a failure. It resulted in one the largest and most important oil discoveries of this millennium.

The only oil major holding licenses in so-called “pre-salt” was it in 2005. It is an enormous petroleum formation located under thick layers of salt on the Atlantic seabed. Brazil would be ranked among the top 10 global oil producers. Its oil-rich area, twice as large as Manhattan’s, could bring in foreign oil companies like Equinor (LON-) PLC and Shell (LON-).

Exxon, on the other hand, spent several years studying seismic images and selected promising areas. It produced three dry holes in 2009 which were followed by two more in 2011

Exxon tried a new strategy in 2012 after it returned the block it had purchased to Brazil’s government. The Exxon was made a minority partner of a number of blocks owned by OGX. OGX is an oil company that was established by Eike Batista, a Brazilian commodities mogul. He promised to transform it into a private Petrobras. Within a year, OGX had fallen into bankruptcy. It was forced to stop operations. Batista was later convicted of market manipulation in Brazil, for dumping OGX shares prior to the collapse.

Batista was not available for comment.

Following that incident, Exxon was moved to the sidelines. Also, there were changes in the rules of the Workers’ Party which gave Petrobras the first rights on the pre-salt discovery.

EXXON REMAINS

Brazil currently has 70% of the total output of 3.7million barrels of oil per day. Pre-salt areas account for 70%. According to ANP, 5.5 million barrels per day of oil and natural gas will be produced by 2025.

These tricky formations are not guaranteed. Exxon began drilling in another offshore field the year before.

Shell is its partner Chevron Corporation (NYSE:) was left empty-handed after it spent $800 millions on drilling licenses. According to Reuters’ June 2020 filing with ANP, Shell claimed it only found water.

Shell stated that the consortium is currently analyzing the 2020 exploratory oil well results and still has not decided on the next steps, Shell explained to Reuters.

Exxon’s Opal- and Titawells are similar. According to someone familiar with these results, Exxon claimed that it had found hydrocarbons in a filing filed with the ANP on Nov. 4. However, they weren’t sufficient to warrant a drilling platform.

According to the ANP, Exxon currently awaits an environmental permit for drilling in a frontier area located hundreds of miles from the two first wells.

Rodolfo Sabioia, head of ANP in December told Reuters that the “era of great discoveries in pre-salt has ended”.