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Brazil's Petrobras reduces 2022 production target on Atapu, Sepia auction

Highlights

Trims estimate by 70,000 boe/d

Auction reduces equity stakes

Oil output stable at 2.1M b/d

Brazilian state-led oil company Petrobras slashed its 2022 production target by 70,000 b/d of oil equivalent amid expectations that its share of output from the Atapu and Sepia fields will be reduced by pending co-participation agreements, the company said Jan. 14.

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Petrobras expects to pump 2.6 million boe/d in 2022, down from an initial forecast of 2.7 million boe/d made in November, the company said. Oil output, however, was maintained at 2.1 million b/d, although Petrobras also expects the co-participation deals to cut 60,000 b/d from its previous production estimate.

In the 2023-2026 period, Petrobras expects the co-participation deals to reduce output by about 100,000 boe/d from previous estimates.

The downward revision followed the sale of excess production volumes from Atapu and Sepia at Brazil's second transfer-of-rights production sharing auction held Dec. 17. Petrobras share of output from the two fields was reduced by the new development consortia created by the auction, where Petrobras faced stronger-than-anticipated competition for rights to crude from the two fields.

Petrobras, however, had exercised its preferential right to hold at least a 30% operating stake in the winning consortium for both fields ahead of the auction, ensuring its participation despite the heated bidding.

Petrobras teamed with France's TotalEnergies and Anglo-Dutch rival Shell to claim rights to Atapu, guaranteeing the government 31.68% of profit oil and paying a $702 million signing bonus. Petrobras will own a 52.5% operating stake in Atapu, while Shell will hold a 25% minority stake and TotalEnergies 22.5%.

In addition, Petrobras holds the right to produce 550 million boe under the original transfer-of-rights agreement. The ANP estimated that the field held an additional 2.5 billion-4.0 billion barrels of recoverable reserves.

Petrobras will also receive about $1.5 billion from its new partners to reimburse the company for investments already made at the field, the company said. The payment is expected by April 15.

The co-participation agreement for the shared Atapu reservoir will grant Petrobras a 65.69% share of production, the company said. Shell will get 16.66%, TotalEnergies 15.0% and Portugal's Galp Energia 1.70%. Government subsalt management company Pre-Sal Petroleo SA, or PPSA, will get 0.95%.

Atapu, which entered operations in June 2020, pumped 157,794 boe/d in November, according to the ANP's latest production report released Jan. 3.

Deals take effect May 1

France's TotalEnergies, meanwhile, led a group that topped Petrobras' solo offer for Atapu, guaranteeing a 37.3% share of profit oil for Brazil. Petrobras adhered to the consortium and owns a 30% operating stake, with TotalEnergies retaining 28%. Qatar Petroleum and Petronas each hold a 21% minority share.

In addition, Petrobras holds the right to produce 500 million boe under the original transfer-of-rights agreement. The ANP estimated the field held an additional 500 million-700 million barrels of recoverable reserves. The group is still negotiating the timing of a $2.2 billion payment to reimburse Petrobras for investments made at Sepia.

The co-participation agreement for the shared Sepia reservoir will grant Petrobras a 55.3% share of production, the company said. TotalEnergies will get 16.91%, while Qatar Petroleum and Petronas will each receive 12.69% of output. Galp also will get 2.41%.

The field, which pumped first oil in late August, produced 43,403 boe/d in November, according to the ANP.

Galp, which didn't participate in any of the transfer-of-rights bid groups, will get its share of oil output because the shared reservoirs extend into acreage where the company holds an interest.

The co-participation agreements are expected to go into effect May 1, according to Petrobras.

Petrobras maintained its investment outlook for 2022 intact at $11 billion under its 2022-2026 strategic plan, the company said. That will likely change when Petrobras releases its 2023-2027 plan next year, which will include additional investments at Atapu and Sepia.

"Throughout the year, partners and PPSA will discuss the development plan for production of excess volumes at Atapu and Sepia, which should include the installation of a new production system at each field," Petrobras said.

COVID surge

Separately, Petrobras confirmed a wave of coronavirus outbreaks at offshore floating production units, the company said.

"An increase in COVID-19 cases has been observed across Brazil at the moment, and this increase in incidents has also been reflected in the oil and gas industry," Petrobras said.

According to Petrobras, the company had 725 confirmed and 1,041 suspected coronavirus cases as of Jan. 13. That was up from 19 cases in the Mines and Energy Ministry's last coronavirus impact report, which was released Dec. 19. The ministry no longer publishes the report.

The breakout has had no impact on operations, with all of the new cases asymptomatic or with very light symptoms, Petrobras said.

Petrobras said that it continued to use hygiene and social-distancing measures implemented at the start of the pandemic in 2020 "without interruption" to protect against the spread of the virus. In addition, the company reduced in-office administrative to 40% on Jan. 12. The return of outsourced administrative workers, meanwhile, was delayed until March from February.