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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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WoodMac: Brazil's Private Firms To Increase Oil Output By 75%

  • Wood Mackenzie: Brazil's private oil companies will increase oil production by 75% from 1.221Mb/d to 2.123Mb/d by 2030.
  • Petrobras is also expected to grow production at an impressive clip, with output expected to increase 61% from 2.15Mb/d this year to 3.46Mb/d in 2030.
  • Wood Mackenzie has said that the current global annual investment clip of around $500 billion into upstream oil and gas is sufficient to meet peak oil demand in the 2030s. 

Global research and consultancy group Wood Mackenzie has predicted that Brazil's private oil companies will increase oil production by 75% from 1.221Mb/d to 2.123Mb/d by 2030. According to WoodMac, international oil companies such as Shell Plc (NYSE:SHEL)Equinor ASA, (NYSE:EQNR), TotalEnergies SE (NYSE:TTE), Repsol Sinopec Brasil S.A. and Petrogal will be among the top producers thanks to their partnership with federal oil firm Petrobras (NYSE:PBR) in the pre-salt and fields under development. 

Petrobras is also expected to grow production at an impressive clip, with output expected to increase 61% from 2.15Mb/d this year to 3.46Mb/d in 2030. Last year, the oil and gas supermajor announced that it would increase 2023-2027 investments by about 15% to $78 billion over the company's 2022-2026 projected spending. Of the $78 billion planned for capex, 83% or $64 billion is earmarked for E&P activities, while 67% of the E&P capex budget will go to pre-salt activities. 

The company also plans to boost spending to reduce carbon emissions to ~6% of the total compared with 4% in the previous plan and will see its decarbonization fund more than double the current $248M.

Earlier this week, CEO Jean Paul Prates reaffirmed those targets but said the company is preparing to preview updates to its business plan next month, including a greater focus on renewable energy sources. Unfortunately, Prates said that investors should not expect the kind of huge dividend payments they enjoyed last year, with the company's dividend policy likely to undergo adjustments to reflect the reality of a company investing in the future. Petrobras will also continue to focus on its strengths in offshore oil exploration, especially in the "pre-salt" fields off Brazil's coast, but it "will gradually transform itself," Prates said.

Adequate Investments

Global research and consultancy group Wood Mackenzie has said that the current global annual investment clip of around $500 billion into upstream oil and gas is sufficient to meet peak oil demand in the 2030s.  Related: UAE Says OPEC+ Cuts Are Enough To Support The Oil Market

According to WoodMac, this will be achieved through 3 main routes: the development of giant low-cost oil resources, relentless capital discipline, and a transformational improvement in investment efficiency. WoodMac expects oil demand to peak at 108 million barrels per day (bpd) in the early 2030s before beginning its long–term decline.

The U.S. Shale Patch is also expected to be in decent shape.

Last year, oil prices hit multi-decade highs shortly after Russia invaded Ukraine, prompting the Biden administration to urge U.S. producers and OPEC to ramp up production at a faster clip so as to rein in spiraling oil prices. However, Saudi Arabia and its allies responded by doing the exact opposite, cutting production when oil prices started plummeting. Predictably, the United States and Europe were irked by the cartel's defiance, with President Joe Biden's administration accusing Saudi Arabia of colluding with Russia and supporting its war in Ukraine.

Well, President Biden can at least thank his lucky stars that the U.S. Shale Patch paid heed to his clarion call: the Energy Information Administration (EIA) has forecast total U.S. output will hit 12.61M bbl/day in the current year, eclipsing the previous record of 12.32M bbl/day set in 2019's and easily beating last year's 11.89M bbl/day.  U.S. crude oil output is up 9% Y/Y blunting OPEC's efforts to keep supplies low in a bid to goose prices.

There is little doubt the U.S. Shale Patch is largely responsible for keeping oil markets well supplied and oil prices low: Rystad Energy has estimated that whereas OPEC and its allies have announced cuts amounting to ~6% of 2022's production, non-OPEC supply has made up for two-thirds of those cuts, with the U.S. accounting for half of that.

Profitability in the U.S. Shale Patch is also expected to improve thanks to falling costs.

After years of rising production costs amid post-pandemic inflation, the Shale Patch can finally breathe a sigh of relief after the cost trajectory hit a turning point. Production costs fell 1% year-on-year in the second quarter, marking the first time they have shrunk in three years. Drill pipe prices have halved this year, daily rig rates are down by more than 10%, and the costs of steel and diesel are also trending lower. According to Goldman Sachs via Bloomberg, Drill pipe prices have fallen by 50% this year; daily rig rates are down by more than 10%, while the costs of diesel and steel have been gradually declining. Only labor has been defying this trend as wages continue rising.

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Whereas a decline of a single percentage point might not make much of a difference to the bottom line, Goldman says costs will be 10% lower in 2024, enough to boost profits and cash flows significantly. Easing price pressures are most welcome: after two years of bummer earnings and copious cash flows, the U.S. oil and gas sector is set to record a decline on both metrics in the current year.

By Alex Kimani for Oilprice.com

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