OPINION: Brazilian independent PetroRio's purchase of operating stakes in two Campos basin blocks offers a reminder that there is more to Brazil than giant pre-salt fields.

PetroRio last week agreed to buy BP’s stakes in blocks BM-C-30 and BM-C-32, taking over operatorship of Wahoo and Itaipu.

These two fields were discovered on the fringes of the pre-salt fairway over a decade ago by former operators Anadarko Petroleum — since acquired by Occidental Petroleum — and Devon Energy.

But they never quite jumped through enough hoops to reach a final investment decision, even when BP became operator of both areas in 2018.

BP’s decision to sell now is hardly a surprise, given the UK supermajor’s strategic decision to focus its oil and gas investments on a narrowing band of assets best able to fund the planned shift toward cleaner energy.

PetroRio, on the other hand, is proving an agile player, committed to building up a production portfolio in the Campos basin.

The two assets acquired can be tied back to the floating production, storage and offloading unit at Frade, the Campos basin field that PetroRio acquired from Chevron and Petrobras.

An earlier acquisition of BP’s Polvo field, followed by careful investments in incremental production and the sale of a 10% stake in the Manati gas field, helped PetroRio come through the Covid-19 downturn with enough cash to make the most of what is now a buyer’s market.

In another recent move, PetroRio initiated a project that will integrate production from the Polvo field with the OSX-3 FPSO on the Tubarao Martelo field, releasing the Polvo FPSO and slashing operating costs.

The Wahoo-Itaipu deal is not the first of its kind in Brazil in recent years: Perenco and Trident Energy have both snapped up shallow-water assets offloaded by Petrobras.

Clearer rules governing Petrobras divestments and efforts by Brazil’s hydrocarbons regulator to make the rules on decommissioning less complicated have made such assets more attractive.

As Petrobras and the bigger international oil companies concentrate their fire on the promises of higher returns from the ultra-deepwater pre-salt fields, this shift has opened up space for junior companies and smaller independents.

Enauta is also turning its attention to this gap in the market. Its new chief executive, Decio Oddone, will be re-adjusting the company’s portfolio toward established producing assets, diluting the past focus on high-risk exploration.

Brazil’s big pre-salt fields are the envy of the oil world and will probably allow this offshore oil and gas province to outlast others, but the country has a large range of onshore, shallow-water and mid-water assets on offer, with plenty of quality and upside in the mix.

Proximity to those super-productive pre-salt fields, and associated logistics, can boost the economics of lesser fields, and the Brazilian legislature still has a job to do with a reform bill that is expected to provide an enormous fillip to the gas side of the industry.

There are stiff challenges to be faced, not least the task of obtaining financing in a world where institutional investors are turning against fossil fuels.

Brazilian authorities can help by acting swiftly to improve the fiscal and regulatory framework for oil sector investors while encouraging indigenous financing mechanisms. The oil companies, it seems, have no shortage of ideas of their own.

(This is an Upstream opinion article.)

Finance

OPINION: PetroRio's BP asset deal shows depth of Brazil market