Shell Announces Major Investments Offshore Brazil

On the same day that Royal Dutch Shell actualized its $50 billion merger with BG Group, CEO Ben Van Beurden announced plans to significantly increase investment in exploration and development offshore Brazil, with the intention of quadrupling the firm's production in the region by 2020.

In addition to BG's natural gas assets, which will make Shell the world's leading player in LNG, BG held significant assets in deepwater offshore projects in Brazil. With BG, "Shell gains access to arguably the best deep-water oil resource globally," said analysts Tudor, Pickering, Holt & Co. in describing the BG deal.

“We believe in the strong fundamentals of Brazil and the fundamentals of its geology,” Van Beurden told reporters in Rio de Janeiro. “We will be looking at a substantial part of our production from Brazil.”

BG's production leases increased Shell's holdings in Brazil sixfold overnight to about 250,000 barrels per day, about 15 percent of the firm's global production and about 8 percent of Brazil's national output.

Shell is one of five partners in development of the Libra field, potentially one of the largest finds in decades with as much as 12 billion barrels, and BG had stakes in Lula, Sapinhoá, Iracema, Iara and Lapa fields in the Santos Basin. BG claimed a breakeven on its projects at prices of less than $40 per barrel.

That breakeven point may prove a potential challenge. Oil prices have plunged, leading many oil firms to cancel or delay offshore projects. Van Beurden, though, was optimistic, and said the Santos Basin projects should be able to break even at oil prices forecast for this year.

In addition to the investment announcement, Van Beurden was quoted in Brazilian press calling for the scandal-ridden Brazilian state oil company Petrobras to step aside and cede additional drilling rights to foreign firms. At present, all projects offshore Brazil must include 50 percent ownership for Petrobras, the most indebted company in Latin America. Petrobras has announced plans to sell $14 billion of its assets, but Van Beurden called for the firm to sell more. “It’s up to congress to decide. But I think it makes sense to call on other companies who have the technology, who have the money,” he said. “I don’t see how this is not beneficial for Brazil.”

Separately, Statoil announced plans to double down on its investments offshore Uruguay with a 35 percent farm-in agreement with Tullow for Block 15, adjacent to Total’s Block 14, where Statoil bought a 15 percent share earlier this month. "With this transaction, we are increasing our exposure to the upside potential of this untested geological setting. This is in line with Statoil' exploration strategy of access at scale," said Nicholas Alan Maden, senior vice president of exploration.