Oil Discovery to Shape Future for Petrobras and Brazil
CEO José Sergio Gabrielli de Azevedo says the Brazilian oil company’s pre-salt drilling will transform an entire industry.
Paolo Fridman
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E-mailJosé Sergio Gabrielli de Azevedo, CEO of the state-controlled Brazilian oil company Petrobras — Petróleo Brasileiro SA (PBR) — is a deep thinker. He’s obsessed with the billions of gallons of oil that exist beneath miles of water, rock and salt about 180 miles off the coast of Brazil and how reaching it can change the world.
In New York City to receive an award from the Brazilian-American Chamber of Commerce, he devotes his day largely to meetings, interviews and a press conference. Each event is designed to explain the company’s technological, financial and political plans for managing the largest oil discoveries in the Western Hemisphere in more than 25 years.
Before heading off for dinner, Gabrielli, 60, a tall, strapping figure with a closely cropped graying beard and stylish glasses, talks about leading Petrobras at a pivotal time in its 56-year history. “It’s exciting to be CEO at a moment when we’re about to make a big jump to a new model and scale worldwide,” he says confidently. Sure, but does it make him a bit nervous? His answer comes without hesitation: “Yes, yes it does.”
These are heady times for Petrobras. The pre-salt oil drilling (so named because the reserves are trapped beneath thousands of feet of ocean water and another 16,000 feet of rock and salt) that the Rio de Janeiro-based company is now undertaking defines the new frontier of ultra-deepwater exploration, according to Gabrielli. He adds that it is risky, technologically challenging and incredibly expensive, but potentially — and explosively — lucrative. Tupi, which in 2006 became the company’s first pre-salt oil field discovery, contains 5 billion to 8 billion barrels of oil, Petrobras estimates. Nearby fields may contain billions of barrels more. Oil-rich Venezuela, by comparison, has proven reserves of nearly 100 billion barrels, industry analysts say.
The CEO estimates that by 2020 Petrobras could boost its production to up to more than 5 million barrels a day, putting it on par with ExxonMobil.
Today, Petrobras — the world’s third largest oil company by market cap — produces 2.5 million barrels of oil a day, making Brazil self-sufficient. Petrobras says it operates in 29 countries, including Angola, Argentina, Bolivia, Colombia, Nigeria and the U.S., where it has a refinery in Pasadena, Texas. In addition to its headline-grabbing pre-salt discoveries, Petrobras is exploring nearly 260 oil and gas blocks off the American coast in the Gulf of Mexico. With more than 100 production platforms and 16 refineries worldwide, and more than 6,000 gas stations throughout Brazil, Petrobras has been “a major player even before the pre-salt discoveries were made,” says Eric Smith, a 35-year veteran of the oil and gas industry and associate director of the Tulane Energy Institute in New Orleans.
With such a backdrop, Gabrielli believes the company’s pre-salt finds will put Petrobras in a new league. The CEO estimates that by 2020, the pre-salt discoveries could boost the company’s production to up to more than 5 million barrels a day, putting Petrobras on par with Exxon Mobil Corp. (XOM), the world’s largest independent oil company, and enabling Brazil to become a major oil exporter. Says Judson Jacobs, director of upstream technology for IHS Cambridge Energy Research Associates: “The volume of reserves Petrobras has cited would have a significant impact on the global oil capacity.” Adds Smith: “There’s no question. Petrobras’ pre-salt discovery is a game changer.”
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Dialing up the pressure is the fact that the Brazilian government owns about 40 percent of Petrobras stock (including shares owned by the Brazilian Development Bank), according to the company, and is currently drafting new exploration and production legislation that could give it a distinct advantage over competitors for future drilling rights in the pre-salt region. If the government has its way, Petrobras will be the lead operator for the more than 60 percent of the new deepwater blocks that haven’t been bid out yet. While that might seem to put the company in an enviable position, experts say, such a move does not come without a price.
“Petrobras is a well-run company that benefits from competition and stirs innovation and efficiencies,” says Christopher Garman, director of Latin America for the Eurasia Group, a global political risk research and consulting firm. “The risk is that if Petrobras gets favorable treatment in acquiring new reserves in the pre-salt region, it may be susceptible to growing political pressure over its investment decisions and become increasingly overstretched in a manner that could make it susceptible to cost overruns and thus less able to invest heavily abroad.” During the next five years, Petrobras officials say, just $16 billion — a fraction of its $174 billion capital expenditure budget — is earmarked for expanding its operations outside Brazil.
