Petrobras in Nigeria: a Success Case

Block 1, Forum 1 paper

Petrobras in Nigeria: a Success Case

Samir Awad, Petrobras Nigeria
Rudy Ferreira, Petrobras Nigeria

Abstract:
A review in Petrobras Strategic Plan in 1998 has outlined a new business model, where
international activities would play a key role in the company's quest for growth. Target areas
were selected to focus immediate efforts and, aiming to capitalize on the comprehensive
deepwater expertise developed in Brazil, a material presence in West Africa deepwater
market became one of the drivers for our expansion.
The Gulf of Guinea, and more specifically, Nigeria is one of the booming areas in deepwater
exploration and production, where all the majors and most international oil companies are
present. Notwithstanding being a new comer in this highly competitive market, Petrobras had
also aggressive near future targets for holding exploration acreage and developing
production.
Non-operated participation interests in three exploration blocks were achieved in the first two
years of activity: OPLs 216 and 246, in Nigeria, and block E, in Equatorial Guinea. Major oil
discoveries in the two Nigerian blocks, Agbami and Akpo, paved the way for establishment
and growth.
The 2000 bid round in Nigeria opened a window for new exploration areas, and Petrobras
was also successful in securing participation in two ultra-deepwater blocks, OPLs 324 and
250, the former one as the operator.
In a 5 year span, Petrobras was able to develop a significant and cost effective presence in
Nigeria through exploration. This paper describes our experience in building this success
case, where a combination of expertise, strategy focus and local presence was fundamental
to achieve our challenging targets.

History
Petrobras, the Brazilian National Oil Company, was incorporated in 1954 and started its
international activities in 1972, through its subsidiary Braspetro. Since then, Petrobras has
been involved in E&P projects in Africa, Middle East, North Sea, US Gulf and Latin America.
The company’s mission was to supply oil and oil products to Brazil, in a monopolistic
environment, this way being completely focused on the domestic market. Working
internationally was not a priority at all, and used to be taken more as a learning opportunity for
our professionals. Although growing in size, by a steep rise on domestic production and
reserves due to deepwater discoveries from mid 80’s, the company’s approach to business
outside Brazil continued to be very conservative and shy.
Since 1995, reform movements inside the Brazilian Government were leading to an opening
of the petroleum sector, where Petrobras would have to compete for territory and market
share as any other oil company would be free to operate in Brazil, from upstream to
downstream & marketing. Changes in the company’s strategy became imperative in order to
survive in a competitive environment.

New Strategy Plan

In 1998, for the first time in Petrobras’ history, a focus on international activities was
mentioned in the company’s revised mission, vision and strategy plan. Implementation of the
new corporate strategy was structured in three main lines of action:

1) Consolidate competititve advantages in the domestic market;

2) Maintain the leadership in the Brazilian gas market and develop integrated participation in
the energy market;
Petrobras in Nigeria: a Success Case
Block 1, Forum 1 paper

3) Expand international activities.

Regarding exploration and production outside Brazil, Petrobras elected to spread its presence
in Latin America and use its deepwater expertise as a leverage for developing new business
opportunities in the deepwater triangle between Brazil, West Africa and Gulf of Mexico.
Petrobras was already present in Angola and US Gulf but, even though assessing the
Nigerian market for some time, we could never find a suitable opportunity to work in the
prolific Niger Delta before. A key to penetrate in Nigeria, a highly competitive environment
where multinationals have been present for decades, should be created, in order to enable
achieving our goals in a cost effective manner.
A balanced mix of success ratio in exploration, governmental relations and local presence
was chosen to build the foundations to establish Petrobras in the Gulf of Guinea region, with
main focus in Nigeria.

Creating Value through Exploration

Starting from 1997, while implementing the opening of the Brazilian market in a depressed oil
price scenario, Petrobras made available onshore and offshore blocks for partnerships in
exchange of exploration acreage abroad. The so called ‘round zero’ blocks in Brazil attracted
a lot of interest from the international oil companies, and some attractive opportunities were
brought in a pure asset swap basis, opening the window for international expansion. Two of
them were in the Niger Delta region: block OPL 216, in Nigeria, and block E, in Equatorial
Guinea.
Simultaneuosly, somehow disconnected to this process, negotiations to farm in into another
block in Nigeria on a ground floor basis were successfully completed, adding OPL 246 to our
portfolio. In a fast track way, Petrobras was able to step in the Niger Delta, growing from zero
participation to three exploration blocks in less than 18 months - all of them in deep waters,
where we could bring along the expertise developed in Campos Basin to the joint ventures.
This action plan was crowned in the subsequent 12 months, when the wells Agbami-2, in OPL
216, and Akpo-1, in OPL 246, proved the existence of world class hydrocarbon reservoirs in
each block. Agbami discovery could be in the range of 1 billion barrels of reserves, but Akpo
still demanded appraisal wells for a better reserve estimate. Disregarding the size, if early
production could be entertained, like Petrobras is used to do in Brazil, first oil might be up to
three years away.
In order to learn more about the practices and peculiarities of the Nigerian environment, it was
deliberately chosen to start working as a non-operator in all the three blocks. Since early
2000, however, appraisal and field development activities developed by both operators in
OPL 216 and 246 had a significant contribution from Petrobras geoscientists and engineers
seconded to the project teams.
In Equatorial Guinea, block E first well drilled in 2001 did not enjoy the same success
achieved in the Nigeria wildcats. The block was then returned to the Government in 2002.
The next step towards material growth was to consolidate development plans for Agbami and
Akpo fields, and also acquire fresh exploration acreage, this time as an operator.

Government to Government: a South-South Connection

Brazil and Nigeria used to enjoy healthy bilateral trade and commerce activities until late
eighties, when everything was progressively brought to a halt. It was the President of Nigeria,
Olusegun Obasanjo, who broke the ice in April 1999, when visiting Brazil in his world tour
after winning the elections.
He invited Brazilian companies to revisit Nigeria in their portfolio as one of his government
goals were to make the necessary systemic changes in order to attract foreign investment,
also ensuring a warm welcome to newcomers. Petrobras was a natural target, being capable
to bring not only investment, but also skills and know how to the petroleum industry in Nigeria
as it entered into deepwater terrain.
Petrobras in Nigeria: a Success Case
Block 1, Forum 1 paper

Well aligned with the implementation of our strategy plan on international expansion,
Petrobras took the invitation as another boost to the company plans to get established in
Nigeria. The promised bid round for new deepwater acreage could be the ideal vehicle for
achieving our goals.

New Acreage and Operatorship

The Year 2000 Bid Round was a landmark in the Nigeria’s petroleum industry as the first
open tender for blocks. Transparency would be the name of the game, marking a clear
departure from the discretionary allocation practices implemented in the past. Proposals
would be unveiled in a public ceremony in July 2000.
The bid assessment system was defined, but some piece of information were missing for a
proper understanding on how a bid would be treated, like, for instance, a weighting system to
balance signature and production bonuses, minimum work program and local content
committment. Companies would be free to choose the type of contract, but no model type
was given to prospective bidders.The main concerns of all were how to make a competitive
proposal without knowing the rules completely, and also how far the assessment process
would be, in terms of transparency and fairness.
Among onshore, shallow and deepwater acreage on offer, the latter were the focus of
attention, as their value had been significantly increased by the huge discoveries made in the
late nineties, like Bonga, Erha, Agbami and Akpo. The blocks OPL 249 and 250, both in deep
waters, were the golden blocks of the bid round.
Petrobras was deeply commited to a winning participation and presented aggressive bidding
figures for blocks OPL 250 and 324. The proposals were opened in a public ceremony, as
anticipated, at the Department of Petroleum Resources, and unprecedented signature
bonuses like US$ 210 million for OPL 250 and US$ 164 million for OPL 249 were announced.
Petrobras was the highest bidder in OPL 324, with US$ 32 million, and third rated in OPL 250,
with US$ 100 million.
The Nigerian Government took six months to award the winners, forming different joint
ventures to work in each block. Legal action restrained awarding blocks OPL 249 and 322. In
December 2000, Petrobras was awarded the operator of block OPL 324, with 75%
participating interest and, as a non-operator, 10% participating interest in block OPL 250.
Both blocks lie within the ultradeep water terrain, in the outer thrust of the Delta.
Even though signing the production sharing contracts took another year of negotiations with
NNPC, this was another major milestone achieved in Petrobras plan for international
expansion and, this time, fighting against strong competition. Structuring a business unit to
manage the asset portfolio built so rapidly was the next step.

Developing Agbami and Akpo

Both fields were discovered in 1999/2000, and development plans were kicked off straight
away due to sheer size of the discoveries. Hopes to see the first oil as early as 2004 were
frustrated, as also the revised first oil expectations year after year, due to a series of
negotiations among partners and with NNPC.

Agbami
The Agbami field is one of the greatest deepwater discoveries offshore Nigeria, and straddles
between blocks OPL 216 and OPL 217. An unitization agreement had to be put in place to
enable project sanction.
Twelve wells and one side track had been drilled in Agbami field so far, proving P50 reserves
of 890 million bbl of oil, with average 1,100 scf/bbl GOR and 48 degrees API. The
development plan is based on 38 subsea wells tied back to a FPSO, through subsea
manifolds and flexible risers.
The main project data are:
• Production of 250,000 barrels of oil per day;
• Gas injection up to 415 MMscf per day;
• Water injection up to 450,000 barrels per day;
Petrobras in Nigeria: a Success Case
Block 1, Forum 1 paper

• FPSO with 2.3 million barrel storage capacity, processing capacities of 450,000
barrels per day of liquids and 450 MMscf per day of gas. Export system consists of a
taut leg moored monobuoy and export lines capable to handle 45,000 barrels of oil
per hour;
• 38 wells, being 20 producers, 12 water injectors and 6 gas injectors.
The Agbami field is the main discovery in OPL 216, now converted to OML 127. The
development of Agbami was sanctioned on February 2005, and first oil is expected at 2Q
2008. With a field development cost presently estimated at US$ 5.06 per bbl, Petrobras share
of investment in the Agbami project is planned to be US$ 585 million for the next four years.
There is another discovery in the block, called Ikija, so far treated as a non-commercial find,
but still requesting further assessment.

Akpo
Five wells and two side tracks had been drilled in Akpo field so far, proving P50 reserves of
620 million bbl of oil. With GOR ranging from 1,500 to 1,800 scf/bbl and API gravity ranging
from 43 to 55 degrees, Akpo oil is currently qualified as condensate by Nigerian authorities.
The field development plan is based on 44 subsea wells tied back to a FPSO, through subsea
manifolds and steel catenary risers.
The main project data are:
• Production of 185,000 barrels of oil per day;
• Gas injection up to 220 MMscf per day;
• Water injection up to 420,000 barrels per day;
• Gas export up to 320 MMscf per day;
• FPSO with 2 million barrel storage capacity, processing capacities of 235,000 barrels
per day of liquids and 530 MMscf per day of gas, linked to a calm buoy through two
16” export lines;
• 44 wells, being 22 producers, 20 water injectors and 2 gas injectors;
• 1 gas export pipeline to Amenam platform, where Akpo gas will join Bonny Island
LNG stream supply for 6th train.
The so called Akpo complex is the main discovery in OPL 246, now converted to OML 130.
The development of Akpo was sanctioned on April 2005, and first oil is expected at 4Q 2008.
With a field development cost presently estimated at US$ 7.64 per bbl, Petrobras share of
investment in the Akpo project is planned to be US$ 1.89 billion for the next four years.
Other two discoveries in the block, named Preowei and Egina, are still being appraised, with
overall estimated reserves of 300 million barrels of oil.

Exploration – The Key for Growth

Exploration rate of success has been driving the establishment of Petrobras in Nigeria, now
materialized with the development of Agbami and Akpo fields. The block OML 127 still has
the Ikija discovery and some other prospects to assess, while block OML 130 does have
Preowei and Egina as candidates for future tie-in to Akpo or stand alone development.
The acreage acquired in 2001 took three years to mature, from the G&G work to the
necessary government contract approvals and permits to drill. The first wells in blocks OPL
250 and 324 were drilled back to back in the second half of 2004 with the rig Deepwater
Discovery. They proved the existence of a petroleum system in both blocks, however failing to
strike a commercial discovery. Explorationists are still working with the information gathered,
and future plans will be decided by partners until the end of the year.
The well Erinmi-1X, operated by Petrobras in block OPL 324, is currently the deepest well in
the Gulf of Guinea, in terms of water depth – 2,525 m - and target depth – 6,318 m.
Looking ahead for future exploration opportunities, Nigeria, Equatorial Guinea and Sao Tome
& Principe still remain one of the industry’s hot spots. Fresh acreage is still available but has
been reduced dramatically in the past 5 years, what naturally reflects on the competition.
In Nigeria particularly, the Year 2005 Bid Round is offering 12 deepwater blocks, and the
company is willing to participate even more aggressively than in 2000. Acreage returned to
Petrobras in Nigeria: a Success Case
Block 1, Forum 1 paper

government from recent OML conversions might also be available in the near future, keeping
the deepwater exploration pace in the Delta.
Using Nigeria as a hub, Petrobras does consider expanding its portfolio of exploratory assets
in the Gulf of Guinea. Exploration activities in Equatorial Guinea, Sao Tome and other
neighbouring countries are continuously monitored in order to feed regional studies and
prospectivity evaluation.

Conclusions
In the recent past, some national oil companies had been very active beyond their country
borders, like Statoil, Petronas, Petrobras and CNPC/Sinopec. In the oil business today,
globalization is not only practiced by a selected club of companies any longer, having national
oil companies truly performing the role of multinationals.
With a new strategy plan in place since 1997, Petrobras has been pursuing international
expansion aggressively. Working in West African deepwaters was a natural target, and
Nigeria became one of the focal points of attention. Creating value through exploration was,
and still is, the main driver to achieve our goals of establishment and growth in a highly
competitive environment like Nigeria.
From a newcomer status in 1998, Petrobras went rapidly on to participate in 4 deepwater
blocks, two in exploration stage, one as operator, and the other two blocks in development
stage. Having invested in Nigeria approximately US$ 350 million so far, the 5-year budget
plan calls for a fresh investment of US$ 2.5 billion before Agbami and Akpo come on stream
in 2008. Our peak production will reach 105,000 barrels of oil per day in mid-2009.
With oil companies struggling to replace reserves in a high oil price scenario, a fierce
competition for new exploration acreage can be easily anticipated. The Gulf of Guinea still
has an attractive exploratory potential, and Petrobras envisages to grow even more in the
region, while using Nigeria as a hub. The main challenge lying ahead is how to make it in a
cost effective manner, as we have achieved so far.

Figure 1. Petrobras participation in the Gulf of Guinea region from 1998 to 2004.
Petrobras in Nigeria: a Success Case
Block 1, Forum 1 paper

Figure 2. Typical channelized sands in the Niger Delta.

Figure 3. Artistic view on Agbami field development.

Petrobras in Nigeria: a Success Case
Block 1, Forum 1 paper

Figure 4. Block OPL 246: Akpo, Preowei and Egina discoveries.

Bolia-1
OPL 219Bolia-2 Chota-2 OPL220
PREOWEI

OPL 246
AK-4/4G1
AK-
3 AK-5/5G1
AK- AK-
1 2
AKPO
KURO

EGINA

20km

120

100

80

60 Akpo
Agbami
40

20

0
2008 2010 2012 2014 2016 2018 2020

Figure 5. Petrobras average production in Nigeria.