PetroRio is the largest independent company in oil production in Brazil. It is the operator of the Polvo Field, located in the Campos Basin, which boasts Brazil’s seventh largest daily production of barrels of oil equivalent (BOE). PetroRio is the owner of Polvo A fixed platform and a drilling rig, currently in operation in this field. The platform is connected to the FPSO Polvo with capacity to segregate hydrocarbons and water treatment, oil storage and offloading.
The Polvo Field license covers an area of approximately 134sq km, with several prospects with potential for further explorations. Part of the success of PetroRio is the company’s corporate culture, which seeks to increase production through the acquisition of new producing assets, re-development, increased operational efficiency, and the reduction of production costs and corporate expenses. PetroRio’s main objective is to create value for its shareholders, with financial discipline and full respect for safety and the environment.
The company goal is to
reach a production of 100,000 barrels per day by the end
of 2017
Still burning bright
PetroRio stands out among the world’s big energy producers for one simple reason: for PetroRio, 2015 was a good year. Despite the challenges imposed by the oil price collapse, PetroRio achieved impressive results from the beginning of the year, when it initiated an aggressive cost reduction programme that comprised operational optimisations and renegotiations with its entire supplier base.
As a result, operating costs dropped 31 percent in 2015 compared to the previous year, while later in the year the company began a second round of renegotiations that generated further cost savings in the first half of 2016. Polvo Field’s operating costs in 1H16 were in line with the company annual target of $90m, which represents a 17 percent cut compared to the already low 2015 levels, while general and administrative expenses fell 67 percent between 2013 and 2015. In the second quarter of 2016, lifting costs declined to $28.17/bbl, the lowest since the beginning of PetroRio operations (see Fig 1).
In 2015, 3.056 million barrels were produced in the Polvo Field (100 percent of the field), with average operating efficiency of 94.4 percent, 1.1 percentage points higher than in 2014. This was an excellent result, considering some operational setbacks the company had to face.
The search for operational excellence is part of PetroRio’s day-to-day activities and the efficiency levels already achieved in the Polvo Field confirm this commitment. During 2015, four off takes were held totalling 1.799 million barrels sold, with revenues of BRL253.1m. PetroRio went through this challenging environment with strong determination and sturdy resilience, presenting a positive EBITDA of BRL150.1m, EBITDA margin of 59.3 percent, net income of BRL110.4m, a strong balance sheet, unlevered and with a comfortable cash position of almost BRL500m at the end of December 2015.
In addition to the cost savings achieved, in December PetroRio completed the purchase of Maersk’s remaining stake of Polvo in order to start a well-succeeded revitalisation programme. After the completion of the first phase in July 2016, which involved an intervention in two producing wells and the revitalisation of a third one that had been abandoned in 2008, a productivity gain of 20 percent was observed.
If maintained in the long run, this improvement has the potential to extend the field’s working life by one year and increase PetroRio’s proven reserve estimates by more than 10 percent, after having already tripled this figure versus the former operator expectations (see Fig 2). Certified developed proven reserves also increased by 45 percent in 2015 and the field useful life was extended by three years compared to the previous report. The company expects a similar gross addition on developed proven reserves in the next certification report after investments made in 2016, and believes one additional upside may come from the outcome of new prospects drilling, mostly sandstone, as new good-quality reservoirs were successfully accessed.
Turning the screws
Last year was a turning point for PetroRio. The company took the bold step of reinventing itself, switching its strategy from an exploration company to instead focus on the acquisition and development of producing fields. As such, PetroRio has undergone significant changes in recent years as part of its development process. Chiefly, this meant increasing oil reserves and obtaining a massive cost reduction, all the while maintaining the highest levels of operational safety. This model is to be executed as part of the company’s expected growth strategy that now relies on the acquisition of producing fields. This successful model implemented in the Polvo Field, which combines cost optimisation, careful reservoir management and a well redevelopment programme should enable the company to obtain additional gains in the new fields to be acquired.
On this topic, it is worth mentioning the Brazilian National Agency of Petroleum, Natural Gas and Biofuels recently granted PetroRio the ‘Operator A’ qualification, which allows the company to perform activities in deep and ultra-deep water, essential for its growth strategy. The current scenario offers good opportunities both in Brazil and abroad, and PetroRio is strategically positioned as one of the sector’s main candidates for value creation given its solid balance sheet, highly qualified technical staff and capital allocation discipline. The company goal is to reach a production of 100,000 barrels per day by the end of 2017. This will be achieved through mergers and acquisitions in order to further dilute fixed costs and capture additional gains when the oil price recovers.
In line with its strategic focus on producing fields and reducing exposure on exploratory risks, PetroRio completed the farm-out of the concessions held by the company in the Brazilian Solimões Sedimentary Basin to Rosneft for $55m, and did not renew the oil exploration licenses in Namibia. Therefore, the company is no longer exposed to commitments with the exploration project in the amount of $150m that would be originated from the automatic renewal of these licenses. Continuing with the process of divesting on non-strategic assets, four aircraft were sold during 2015 for $6.1m. Two others were sold in the first quarter of 2016 leaving only one aircraft, for which the firm is currently
seeking a buyer.
In addition to Polvo Field’s optimisation, another area that should be highlighted is PetroRio’s innovative capacity and entrepreneurial culture. This has proven to be of vital importance as the energy company has now become the first in Brazil to use a new technology for oil containment and collection in case of oil spills. At the same time, the new equipment, Side Collector, increases oil collection capacity, as well as being able to eliminate the need for a second dedicated vessel. This then goes towards promoting the firm’s expected annual cost savings of approximately $3m. This strong culture, focused on results, will consolidate PetroRio as Brazil’s largest independent oil and gas production company.
Lastly, on July 14, PetroRio completed 1,500 days without lost-time injuries on the Polvo A fixed platform, which is equivalent to more than four years or approximately one million working hours. This important milestone demonstrates the company’s commitment to reflecting the principles of economic, environmental and social sustainability in its values and culture.
PetroRio had what can only be described as a successful 2015. In the environment of seemingly unending soft energy prices, many firms around the world have wavered, unsure of how to move forward in this new climate. PetroRio has not been one of them. It has faced the decline head on and used it as an opportunity for reorganisation. Its strong corporate culture has allowed it to make the most of the tough international climate within which it finds itself operating; its hard-headed and practical approach has allowed it to face down the worst of the world’s energy price collapse. PetroRio can now boldly move forward – in spite of prices seemingly not recovering anytime soon – with confidence.
