While a leaner and more selective exploration industry has emerged over the past two years, Wood Mackenzie expects Latin America to buck this global trend in 2018, with intense exploration activity expected in frontier basins in the Equatorial Margin, Brazil, Argentina and Mexico, according to Wood Mackenzie’s recent insight, Latin America Upstream: What to look for in 2018.
Interest in Latin America's high-potential deepwater basins will continue in 2018, with licensing rounds in Brazil and Mexico expected to draw strong bidding from the majors and Asian national oil companies (NOCs). In particular, Brazil's pr-salt licensing rounds and redevelopment of Brazil's mature Campos Basin oil fields, are capturing attention. Although an expensive operating environment may keep independents away from Brazil, these companies will look for lower-cost licensing opportunities in Mexico, Uruguay and offshore Argentina.
Latin America's deepwater breakevens also continue to decline. In Brazil's giant Libra pre-salt field breakevens have seen significant reductions in recent years, from US$52/bbl in 2014 to US$45/bbl in 2017.
"Sizeable reserves, project optimization and good productivity have been driving deepwater costs down. In 2018, we expect already outstanding pre-salt well rates will reach new heights, driven by technological enhancements, further reducing well count and total cost," said Horacio Cuenca, research director for Latin America at Wood Mackenzie.
Major oil and gas projects offshore Brazil, particularly pre-salt, will continue to sustain Latin American production. The region's recent production ramp up will continue to gain momentum in 2018, driven in part by seven floating production storage and offloading (FPSO) units deployed in Brazil.
With a broad range of licensing and divestment opportunities expected in the year ahead, companies looking to invest in this attractive and lucrative region have a huge variety of entry opportunities, said Matt Blomerth, head of Latin America Upstream Research at Wood Mackenzie.
"Last year, portfolio high-grading steered companies to deepwater licensing and M&A in the region and we anticipate that hot streak to continue in 2018. In the coming year we expect to see strong interest from Asian NOCs and majors in exploration blocks and DROs [discovered resources opportunities] offered in Argentina, Brazil and Mexico. Ecuador may also get back in the game as the government seeks to replace service contracts with production sharing contracts."
Latin America’s upstream sector enters 2018 with strong momentum as recent investor-friendly regulatory changes have enticed operators back to the region. However, investors face some trepidation as highly uncertain presidential elections in Brazil, Mexico, Colombia and Venezuela could slow the region's pace of upstream development. Argentina however stands out as a pro-reform bright spot, the analysis notes.
“2018 will certainly be a transformative year for the region, both economically and politically," Cuenca said. "Although there is some political uncertainty ahead, the immense exploration and development opportunities available in the region will keep optimism high."