Brazil's Petrobras Releases Reserves Data

Reserves Rise in Brazil but Fall Abroad

Brazilian state oil company Petrobras has released a statement announcing that its crude and condensate reserves in Brazil rose to 12.056 billion barrels of oil at the end of 2009, according to Society of Petroleum Engineers (SPE) criteria, also used by the Brazilian oil regulator the National Petroleum Agency (ANP), while its proven natural gas reserves fell slightly to 335.843 bcm, bringing its combined oil and gas reserves in fields under concession to Petrobras in Brazil to 14.169 billion barrels of oil equivalent (boe), up by 0.5% compared with 2008. Petrobras said that its reserve replacement index was 110% and that its reserve:production ratio in the country was 18 years. Meanwhile, its international proven reserves of oil, condensate, and natural gas were 0.696 billion boe, down 30% from the previous year, bringing its total domestic and overseas proven reserves to 14.865 billion boe as of 31 December 2009. This represented a 1.5% decrease from the previous year. The sharp drop in international reserves was due to the exclusion of Petrobras' Bolivian reserves following the approval of a new Constitution last year that declares oil reserves to be the property of the state, and in anticipation of the passage of a new hydrocarbons law this year to reflect this change. Petrobras' statement did not give a country-by-country breakdown of its international reserves in 2009, but earlier figures put its net proved reserves for South America (excluding Brazil) at end-2008 at 0.804 billion boe and total international reserves at 0.992 billion boe.

Meanwhile, reserves measured using U.S. Securities and Exchange Commission (SEC) criteria saw Petrobras' proved oil and gas reserves in Brazil standing at 11.563 billion boe at the end of 2009. Its total domestic and overseas proven oil and gas reserves were 12.14 billion boe, up from 11.2 billion boe in 2008. Petrobras said that the change in rules allowing companies to use the average oil price for the year, rather than just the end-December price, had a positive effect of 1.074 billion boe in the incorporation of proved reserves. According to SEC rules, Petrobras' reserve replacement index in Brazil was 264% and its reserve:production ratio 15 years.

The main differences between the reserve estimates filed with the SEC and those reported to the ANP are that SEC rules limit reserve estimates to the life of concession contracts, as well as excluding projects in the initial phases of production development. This has resulted in SPE reserve estimates historically being higher than the SEC figures. This trend continued last year, although the decline in reserves seen in 2008 was reversed in 2009 thanks in part to the new oil price calculation. Petrobras said that pre-salt discoveries in the Espirito Santo Basin were incorporated into both the SEC and SPE calculations, but not the pre-salt finds in the Santos Basin, as they are still under evaluation.

Outlook and Implications

The modest 0.5% increase in Petrobras' proved reserves in Brazil last year will have come as a disappointment following the announcements on an almost weekly basis of new finds by Petrobras and other companies operating in the sector. Indeed, a list of the top ten discoveries in the world last year compiled by IHS included two finds in Brazil, one in a block in which Petrobras has a 60% stake: BM-S-52.

Petrobras' reserve potential is not fully reflected in either the SPE or the SEC data due to the exclusion of a series of recent discoveries in the pre-salt layer of the Santos Basin. These finds have generated expectations that up to 80 billion boe of new reserves could be found in areas under concession in the pre-salt area, securing Brazil's oil self-sufficiency in the years to come. Even more modest estimates of recoverable reserves from blocks that are already under evaluation point to 10.6-16 billion boe in reserves, which if proved, should be added to Petrobras' reserve estimates in future years.

Nonetheless, it is precisely the omission of the pre-salt finds from the reserve data that serves to highlight the importance of this new exploratory frontier. The historical SEC data show that Petrobras' oil reserves in Brazil in recent years have stabilised around the 9-billion-barrel mark and actually fell below this level in 2008 (due to reserve reductions made to reflect lower oil prices at the end of 2008). This, in turn, provides a reminder that without the pre-salt finds Brazil faced a possible future of declining production volumes, once production at several large fields in the Campos Basin had peaked.