Shell sees Brazil oil venture at under $40 a barrel

Latin American country to hold deepwater oilfield auction on Friday and energy major says it can produce crude cheaply

Shell employees. The energy major says it could produce oil at less than $40 a barrel from a proposed Brazil deepwater block. Alejandro Cegarra/Bloomberg

Royal Dutch Shell will participate in Brazil's deepwater oilfield auction on Friday and is confident it can pump oil from the fields on offer for less than US$40 a barrel, a top Shell executive said.

Brazil will hold its first auction in four years for its pre-salt oilfields on Friday. The eight deepwater blocks on offer hold billions of barrels in reserves, and for the first time, Brazil will allow foreign oil firms to operate the fields in the region.

Shell believes it could pump oil from the pre-salt fields below the company's target breakeven cost of $40 per barrel, said Wael Sawan, the executive vice president for Shell's deepwater division.

The high quality of the reserves and the prolific output volume that the pre-salt wells can produce make them an attractive proposition, he said.

"I think what Brazil really has going for it is a naturally blessed subsurface that allows it to compete with the best of what's out there in the world," he said on the sidelines of an oil conference in Rio de Janeiro.

Mr Sawan declined to give details on what blocks Shell might be interested in bidding for, or on whether it would bid with partners.

Reforms in Brazil enacted under the president Michel Temer had made the reserves a more attractive proposition, he said. If Shell was unable to produce the oil at below $40 a barrel, it would not be able to take the blocks on, Mr Sarwan added.

Like other oil majors, Shell has cut costs since oil prices crashed in 2014, and has reduced participation in higher cost oilfields.

The energy major is the second-biggest oil producer in Brazil, and Petrobras' biggest partner in pre-salt production.

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Its Libra project, a block Shell won as part of a consortium in the first pre-salt auction in 2013, should produce first oil from a test well in November or December, Mr Sarwan said. That was a few months later than the July date originally slated.

Brazilian state-run oil firm Petrobras is the operator on that project, and France's Total and Chinese companies Cnooc and CNPC are also in the consortium developing the project.

Shell will take a final investment decision on its multibillion-dollar Vito project in the US Gulf of Mexico in 2018, Mr Sawan said.

"We are well advanced on the design on testing where the market is and ultimately the decision point is going to come in 2018 whether yay or nay," he said.

If Shell goes ahead with the project, Vito would become a production hub for the firm in the region, he said.

Shell would also be keen on developing energy projects in the eastern Gulf of Mexico if the administration of the US president Donald Trump ends the moratorium on drilling in the area, he said.

Mr Trump signed an executive order in April aiming to open up more offshore terrain to oil and gas leasing, prompting a review that could lift drilling bans in the Eastern Gulf of Mexico among other areas.

"We have appetite and we are interested," Mr Sawan said.