Exxon at Crossroads in Brazil, But Not Quitting Yet

Exxon Mobil is sitting at a crossroads in Brazil, as the US major mulls how to proceed after a multiyear drilling campaign failed to unlock a major discovery that would extend the commercial reaches of the country’s prolific pre-salt play.

Citing people familiar with the matter, the Wall Street Journal reported Wednesday that Exxon was “quitting” drilling offshore Brazil following a string of disappointing results, with engineering and geological resources being shifted to other countries.

But Energy Intelligence understands that the shift doesn't signal an intent to head for the exits — at least not yet. While Exxon does not have additional drilling planned offshore Brazil anytime soon, the pause in activity is just that — a pause following a previously outlined drilling program — rather than a precursor to a strategic departure.

“Exxon Mobil is still engaged in Brazil and continues to pursue exploration activity in the country,” company spokeswoman Michelle Gray told Energy Intelligence. “Our initial exploration drilling program in Brazil is now complete. We continue to work with our co-venturers to analyze the data acquired from the extensive drilling program to assess the potential for future exploration activities in those blocks.”

Still, there is no denying that the results of that drilling program have run short of expectations.

Supermajor Ambitions

Exxon’s first run at pre-salt exploration in the late 2000s was a trio of noncommercial wells on a block shared with Hess — results that at that time did indeed compel it to head for the exits.

But with Petrobras and international oil companies including Shell and Equinor continuing to find “advantaged” low-cost barrels off Brazil that could compete for funding even in an era of strict capital discipline, the US major decided to have another go.

This time, Exxon went big, spending several billion dollars to amass the second-largest acreage position among IOCs — some 2.6 million net acres — and operatorship across more than 60% of its holdings.

It was with this position in hand that Exxon tipped Brazil as one of its three upstream areas of focus as it reset its capital program materially lower in the wake of the pandemic-led downturn.

“Brazil is one of the most prospective offshore basins in the world, and on our acreage, we have multiple prospects, each averaging more than 1 billion barrels of oil equivalent of resource potential. Very few places in the world have this type of potential in multiple single prospects,” Exxon upstream head Neil Chapman said in March 2021, as the company was in the midst of a multiwell campaign run by operator Petrobras and was about to embark on its own three-well operated drilling program.

What followed across both those Petrobras and Exxon-operated programs was a string of successes in terms of encountering hydrocarbons — but not discoveries of the magnitude and nature Exxon had hoped for.

Several wells, including Araucaria and Tita in the Santos Basin, were reportedly noncommercial, as were the findings at Exxon’s Opal well in the Campos Basin. Discoveries at Naru, Urissane and Mairare, meanwhile, were mostly gas, and Exxon and partner Equinor opted to take a pass at joining Petrobras in advancing an ultra-deepwater gas hub development, according to Upstream reports. Yba and Cutthroat were dry holes.

In all, six of the eight wells drilled in 2020-22 appear to confirm the presence of working hydrocarbon systems in areas that sit outside the core Santos Basin and inner sections of the Campos Basin that have underpinned Brazil’s pre-salt bonanza. In other words, work remains to de-risk these more frontier areas of the country’s vast offshore.

Others attempting to test the commercial reaches of the pre-salt include Shell, Equinor and Brazilian independent PetroRio.

Back to the Drawing Board?

Where Exxon goes from here remains to be seen. With stakes in more than two dozen blocks, the major has plenty of running room should it opt to return to the drillbit. Alternatively, it could decide that the string of modest oil “shows” and more commercially challenged gas discoveries make other pieces of its global exploration portfolio a better place to sink additional dollars.

In the meantime, Exxon will continue working with operator Equinor and Brazilian independent Petrogal to bring Phase 1 of the Bacalhau development in the Santos Basin to the finish line. The project remains one of Exxon’s prized upstream projects thanks to break-even costs below $35 per barrel and the potential to net the US major $1 billion in operating cash flows and returns in excess of 15% at a $50/bbl flat oil price once it comes on line in 2025.

Project partners are evaluating a second development phase. Phase 1 is targeting gross capacity of 220,000 barrels per day.

Exxon's Brazilian Offshore Assets