Brazil’s Enauta expects to benefit from US$6bn E&P investments coming into the market over the next years, as it will have more opportunities to close partnerships with other oil firms.
The company started as QGEP, a division of Queiroz Galvão Óleo e Gás, in 2001, focusing on seizing opportunities when the Brazilian market first opened for private investments. After raising over 1.5bn reais (US$950mn at the time) in its IPO in 2011 and closing partnerships with more than five companies, including majors ExxonMobil, Equinor and Total, it now wants to consolidate its business model with the new wave of private investments.
BNamericas talked to Enauta CEO Lincoln Guardado about plans to buy new assets, the energy transition and the expectations to contract a platform for its Atlanta field in Santos basin, which will demand new rigs and well drillings in the coming years.
BNamericas: How is Enauta benefiting from Brazil’s energy market opening?
Guardado: The more foreign companies come to Brazil, the better for our partnerships strategy. We intend to have participations between 20% and 30% in assets and we have been observing the facilitation of this strategy.
We started as part of a drilling firm, Queiroz Galvão Óleo e Gás, in 2001, when the market first started opening and we saw big potential for Brazil. We are observing the same now. The company participated in the first exploratory waves through partnerships with Equinor, Total and other firms that were entering Brazil. We also helped other companies enter the Brazilian market, such as Premier Oil and former Pacific Rubiales. After we opened our capital, in 2011, more opportunities opened for us.
The company was created focused on deep waters and to operate some areas, but not many. Our technical personnel mostly came from Petrobras’ early retirement plans, so we have skipped a knowledge building process that most companies coming to Brazil have not gone through yet. It is very common for newcomers to look for us because they recognize we know the basins and the logistics processes and we know how to do business here.
BNamericas: How do you see the current state of Brazil’s oil and gas supply chain?
Guardado: We would love to buy everything in Brazil, but the market is not ready yet for the boom that is coming. In spite of all the local content efforts, the market has not reacted yet.
The recent changes were very positive for the industry because the market opened with new auctions that will help bring investments and, thus, more companies to Brazil. Now the country is at the correct pace, we reduced local content requirements to incentivize exploration and production investments and this will help companies come to Brazil. We are talking about over US$6bn investments in E&P. This is the intelligent way to grow the national industry.
BNamericas: What’s your view on national content requirements?
Guardado: The former local content rules were unachievable. The industry could not deliver what was required in due time with quality and good prices. But I believe the correct way to incentivize the industry is what we will do from now.
A good example is that regulator ANP now established that companies buying equipment in Brazil and exporting it for their foreign operations also gain local content points. This is excellent and is already bearing fruit since some majors are buying equipment here to use outside Brazil. I am very optimistic about the growth that is coming.
BNamericas: Does the company plan to expand its pre-salt activities?
Guardado: We are currently the only private Brazilian firm to operate in deep waters, through the Atlanta field, Santos basin. We believe deep waters are the areas that give the expected returns for investments. That is our current motivation.
BNamericas: Is the company eyeing new assets?
Guardado: We are looking at the next auctions. Regarding Petrobras’ assets sale, we have not found yet an asset that fits our strategy. Petrobras has been selling mostly onshore and offshore mature fields, but this is not our profile. In deep waters, the assets sold so far are beyond our financial capacity, because they are giant fields, such as Marlim and Tartaruga Verde.
For us, it would be good to have another production asset and the market currently has other opportunities, but they are mostly for fields with small and medium-term production, not in the initial production phase or development stage.
BNamericas: Could the firm expand operations outside Brazil?
Guardado: Our company has many people that came from Petrobras and that can work in regions such as the Gulf of Mexico, West Africa, and other South American countries. However, Brazil for us is the hotspot in terms of E&P and we have a differential here.
Working overseas would fit us if we had not the market opening that is happening now in Brazil. We have looked at areas in the Gulf of Mexico in the past when we thought the country would continue closed for private investments, but fortunately, that did not happen. So there are no international plans at the moment.
BNamericas: How is the company preparing for the energy transition?
Guardado: We believe natural gas will be the transition fuel. So we wish to use gas to make our transition. I do not doubt that oil and gas will continue to be important for our revenue generation, but slowly we will look at assets that can form a reasonable matrix between oil and gas.
In the meantime, we will also monitor the market changes to conjugate another possible energy source. We start to see the use of wind and solar power in offshore platforms, for example. [But] we do not have transition plans yet outside the focus on natural gas, which will be important in our activities.
The natural gas source in Brazil will be the pre-salt and we are looking at areas that will bring a higher gas production in the future.
BNamericas: How will the gas market opening help Enauta?
Guardado: I have no doubt the changes will help Brazil in all areas. The economic equation for natural gas is not completely resolved, but it is partially resolved. Sergipe is an important area for that and it is a region that needs gas, so that is being taken into account in our economic evaluation of our exploratory areas there. However, our blocks are mostly focused on oil. We believe Sergipe-Alagoas oil has an excellent quality, with 38ºAPI, among the best qualities in Brazil.
BNamericas: What are the next operational steps for Enauta?
Guardardo: Our basic frontiers are consolidating Atlanta’s production and make the final decision on its full development by the end of 2019 or early 2020. The information from the anticipated production system will be important in that decision.
On the exploratory side, we are preparing to drill in the Sergipe-Alagoas basin at the end of 2020 or the first quarter of 2021, in the blocks operated by ExxonMobil in which we have a stake. These are the two areas where we will invest the most in the next two years.
BNamericas: How are Atlanta operations going?
Atlanta is currently undergoing an anticipated production system, a Brazilian development model in which you do not invest a lot of upfront capital until you have rational results to reduce the discovery’s risks. We are in that phase and with the drilling of the third well of the area the interventions made in the first two wells, the expectation is to raise production from 12,000b/d of oil to a range between 25,000b/d and 27,000b/d. We are very pleased with the results. We started in Atlanta with a discount on the Brent reference price, including logistics costs, of US$18/b to US$20/b and now we’re between US$11/b and US$14/b, with the expectation of maintaining US$11/b.
Another factor helping is the international market circumstances, since the fall of production from Saudi Arabia, Iran and Venezuela has reduced the volume of heavy oil available in the market and this is helping Atlanta’s production. A structural change that will help Atlanta is IMO220, the rule that will reduce sulfur requirements for vessels bunker. Atlanta’s oil has only 0.35% of sulfur. Asia has already started implementing this rule and many of our oil loads were headed there.
BNamericas: How is the company preparing for the final investment decision in Atlanta?
Guardado: The definitive production system could be in place in the second quarter of 2022, but the final decision has not yet been made. Due to the market crisis, we need to reevaluate our development plan presented in 2012 when the barrel was around US$110 and now it is around US$60.
Before we talked about a definitive system with the capacity to deliver 70,000b/d of oil connected to 12 wells. Now we evaluate something between 50,000b/d and 70,000b/d. Production in the coming months will help us make this decision and we expect to launch a bid to hire the FPSO by mid-2020.
BNamericas: Could the firm start working in Atlanta’s pre-salt area soon?
Guardado: Atlanta’s pre-salt is not as big as other pre-salt projects, but we believe it does have economic viability. It was not drilled yet due to problems we had with one of our partners in the past, so we could not make those investments since we had to assume this firm’s capital allocation. (Dommo Energia, former OGpar, was expelled from the Atlanta contract after failing to deliver investment requirements).
Now, with this question solved, we hope to drill those areas when we start implementing Atlanta’s definitive production system. We will need a rig to drill the wells that will compose the definitive system and we could use it to also work in the pre-salt, but there is no decision regarding that yet.