COMMODITIES 2025: Subsalt development, fresh acreage to power Brazil oil output growth

This is part of the COMMODITIES 2025 series where our reporters bring you key themes that will drive commodities markets in 2025

Brazil will likely register crude oil and natural gas production gains in 2025 amid ongoing development of the offshore subsalt region and the return of the country's Open Acreage auction program after a year-long hiatus, according to oil companies, industry officials and government entities.

The production growth will come after a difficult 2024, when oil and gas output was undermined by poor climate conditions onshore and a heavy schedule of maintenance projects offshore. In addition, oil companies faced development delays related to labor strife at the National Petroleum Agency, or ANP, and the Brazilian Institute for the Environment and Renewable Natural Resources, or IBAMA.

Workers at the ANP and IBAMA enacted work-to-rule actions and carried out limited strikes in the first half of 2024, which led to delays for environmental permits and regulatory approvals. The issues were settled in August, but oil companies and officials have said the two regulators were working through a backlog of projects that accumulated during the labor disturbance.

Oil companies operating in Brazil pumped an average of 3.268 million b/d of crude and 158.9 MMcf/d of gas in October, totaling 4.268 million b/d of oil equivalent, according to the latest figures from ANP. Output in Latin America's largest oil and gas producer, however, has been lackluster since peaking at a record 4.698 million boe/d in November 2023.

S&P Global Commodity Insights expects crude production in Brazil to increase to 3.6 million b/d by the end of 2025 and to 3.8 million b/d by the end of 2026.

The country exports much of its crude. In September, the country exported 1.2 million b/d, with roughly 976,000 b/d of that going to China, Commodity Insights data showed.

However, future growth will more likely come from new players rather than the country's dominant producer, state-led oil company Petrobras. Petrobras expects to maintain domestic oil and gas output at 2.8 million b/d of oil equivalent in 2025 under the company's $111 billion investment plan for 2025-2029.

Under the plan, Petrobras expects to install three new floating production, storage and offloading vessels, or FPSOs, in 2025. The FPSO Almirante Tamandare will pump first oil from the Buzios field in the first quarter, followed by the FPSO P-78 later in the year. The FPSO Almirante Tamandare will be Brazil's biggest offshore production unit at 225,000 b/d, while the FPSO P-78 can produce 180,000 b/d.

Petrobras also plans to install the FPSO Alexandre de Gusmao, which can produce 180,000 b/d, at the Mero field in the Libra production sharing area.

Equinor leads the charge

Norway's Equinor will lead the charge of new developments in 2025, with first oil from the Bacalhau subsalt production sharing field expected in the first half of the year, according to the company. The FPSO Bacalhau will have installed capacity to produce 220,000 b/d.

Brazilian independents Brava Energia and Prio also expect to bring new offshore developments onstream. Brava Energia expects the ANP to authorize it to start production at the new FPSO Atlanta installed at the Atlanta heavy oil field and restart production at the Papa Terra field in December. Prio expects to receive IBAMA permits to drill four production wells and install submarine equipment to tie back the Wahoo field to the FPSO Valente installed at the nearby Frade field in the first half of 2025.

The FPSO Atlanta has installed capacity to produce about 50,000 b/d, while Wahoo is expected to pump about 40,000 b/d.

Buzios, Mero and Bacalhau are all part of Brazil's production sharing regime and will play a key part in pushing the country's share of profit oil under the regime higher in 2025, according to government subsalt management company PPSA.

PPSA expects to average oil output of 1.268 million b/d in 2025, up from a record 1.126 million b/d in September.

It also expects to carry out a series of oil auctions in 2025 to sell off the government's share of output, as well as the company's first sale of the government's share of natural gas production at auction, according to the regulator.

PPSA plans to sell 78 million barrels from the Bacalhau, Buzios, Itapu, Mero and Sepia fields at auction on June 25. Spot market sales of cargoes from the Atapu, Itapu and Sepia fields also are likely in June-August 2025.

The first sale of natural gas will likely take place in Q4, with PPSA expected to release the auction rules and contract in H1 of the year.

Also, Brazil will likely continue to flex its muscle as a global player and domestic consumer in 2025, given the resilience demonstrated by crude oil exports despite the challenging production scenario in 2024.

Brazilian crude oil exports were up 13.9% year to date at 545.8 million barrels in October, which was on pace to break the previous annual record of 581.9 million barrels set in 2023, according to the ANP.

New frontiers

Oil companies will finally get access to onshore and offshore exploration and production blocks in 2025. The ANP expects to publish the contract and auction rules for the Open Acreage concession model in January, with the country's fifth cycle expected to be triggered in H1 of the year.

The portfolio of exploration and production blocks features 404 concession areas considered new frontiers, including 54 onshore blocks and 350 offshore blocks spread across 12 separate sedimentary basins, according to the ANP. Brazil sold 192 onshore and offshore concession blocks during the fourth Open Acreage concession cycle, which was held in December 2023.

A new production sharing contract and auction rules also are expected in H1 2025, according to the ANP. The ANP completed a public comment period on changes to the Open Acreage production sharing model Dec. 11, with the new rules and contract expected to be published next year.

The Open Acreage production sharing portfolio includes 21 subsalt blocks, according to the ANP. Brazil sold a single subsalt block, Tupinamba, at the last Open Acreage production sharing bid round, held in December 2023.

Regulatory challenges

Oil companies operating in Brazil, however, still face regulatory challenges to growth, according to officials.

Brazil's regulators remain overworked and understaffed given the industry's massive demand after activity ramped up following the global coronavirus pandemic. The work conditions and additional budget cuts mandated under spending laws played a key role not only in the strikes at the ANP and IBAMA, but also in the delays caused by the two regulators' difficulties to quickly work through the project backlog.

Brazil is also in the process of implementing a new tax regime, which could implement fresh taxes on oil and natural gas production to fund energy transition projects. In addition, the Mines and Energy Ministry wants to review offshore development projects with an eye toward reducing gas reinjection at offshore fields. Both measures could undermine investment decisions at projects in Brazil, according to company executives.

The ANP also faces the herculean task of implementing Brazil's more-liberal New Gas Market regulatory regime that was passed in 2021. The regime ended Petrobras' monopoly in the country's gas segment and was expected to spark a jump in output and decline in prices. The rollout of the regime, however, has been delayed by its massive scale and the turnover of key directors at the agency.