Replies to post #2786 on The Rising Influence of Rising Affluence

[DewDiligence]

Following is the section of PBR’s 2010 20-F pertaining to reserves. I would be interested in knowing which sections you consider of particular interest for investors:

http://sec.gov/Archives/edgar/data/1119639/000129281411001552/pbraform20f2010.htm#_Toc293579253

Production of crude oil and natural gas in Brazil is divided into onshore and offshore production, comprising 11% and 89% of total production in Brazil, respectively. The Campos Basin is one of Brazil’s main and most prolific oil and gas offshore basins, with over 59 hydrocarbon fields discovered, eight large oil fields and a total area of approximately 115,000 km2 (28.4 million acres). In 2010, Campos Basin produced an average 1,676.9 mbbl/d of oil and 13.6 mmm3/d (513.0 mmcf/d) of associated natural gas during 2010, comprising 81.5% of our total production from Brazil. We also conduct limited oil shale mining operations in São Mateus do Sul, in the Paraná Basin of Brazil, and we use oil shale from these deposits to produce synthetic oil and gas.

On December 31, 2010, our estimated proved reserves of crude oil and natural gas in Brazil totaled 12.14 billion barrels of oil equivalent, including: 10.38 billion barrels of crude oil and natural gas liquids and 279.67 bnm3 (10.55 tcf) of natural gas. As of December 31, 2010, our domestic proved developed crude oil reserves represented 67% of our total domestic proved developed and undeveloped crude oil reserves. Our domestic proved developed natural gas reserves represented 66% of our total domestic proved developed and undeveloped natural gas reserves. Total domestic proved crude oil reserves increased at an average annual rate of 4% in the last five years. Natural gas proved reserves increased at an average annual rate of 4% over the same period.

In 2010, we added 1,372 mmboe of crude oil and natural gas to our domestic proved reserves, mainly due to discoveries in the pre-salt region of the Santos Basin (59% of the total), technical and economic revisions to previous estimates (31% of the total) and, to a lesser extent, increased recovery from existing fields and other new discoveries in exploratory blocks. After production of 797 mmboe in Brazil for the year, these additions to our reserves base in 2010 allowed us to grow our proved reserves in Brazil by 5%.

We calculate reserves based on forecasts of field production, which depend on a number of technical parameters, such as seismic interpretation, geological maps, well tests, reservoir engineering studies and economic data. All reserve estimates involve some degree of uncertainty. The uncertainty depends primarily on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of that data. Our estimates are thus made using the most reliable data at the time of the estimate, in accordance with the best practices in the oil and gas industry.

Internal Controls over Proved Reserves

The reserves estimation process begins with an initial evaluation of our assets by geophysicists, geologists and engineers. Corporate Reserves Coordinators (Coordenadores de Reservas Corporativo, or CRCs) safeguard the integrity and objectivity of our reserves estimates by supervising and providing technical support to Regional Reserves Coordinators (Coordenadores de Reservas Regionais, or CRRs) who are responsible for preparing the reserves estimates. Our CRRs and CRCs have degrees in geophysics, geology, petroleum engineering and accounting and are trained internally and abroad in international reserves estimates seminars. CRCs are responsible for compliance with Securities and Exchange Commission rules and regulations, consolidating and auditing the reserves estimation process. The technical person primarily responsible for overseeing the preparation of our domestic reserves is a member of the SPE, with 21 years of experience in the field and has been with Petrobras for 27 years. The technical person primarily responsible for overseeing the preparation of our international reserves has four years of experience in the field, a doctorate in reservoir engineering and has been with Petrobras for 31 years. Our reserves estimates are presented to our senior management and submitted to the board of directors for final approval.

D&M reviewed and certified 94.9% of our domestic proved crude oil, condensate and natural gas reserve estimates as of December 31, 2010. Outside of Brazil, D&M also reviewed and certified 91.2% of our estimates of international proved oil, condensate and natural gas reserves in fields where we are the operator as of December 31, 2010. The estimates for the certification were performed in accordance with Rule 4-10 of Regulation S-X of the SEC. For further information on our proved reserves, see “Supplementary Information on Oil and Gas Exploration and Production” beginning on page F-129.

Changes in Proved Reserves

We subtracted a net total of 447.9 mmboe from our company-wide (consolidated and non-consolidated entities) proved undeveloped reserves at year-end 2010 compared to year-end 2009. Thus, we had a total of 4,354.27 mmboe of proved undeveloped reserves company-wide at December 31, 2010, compared to 4,802.1 mmboe at December 31, 2009.

Proved undeveloped reserves in Brazil decreased by 500.1 mmboe, while outside of Brazil proved undeveloped reserves increased by 52.2 mmboe, resulting in a net reduction of 447.9 mmboe company-wide. The primary factor responsible for the net reduction in our proved undeveloped reserves in Brazil in 2010 compared to 2009 was the conversion of proved undeveloped reserves to proved developed reserves. We converted a net total of 1,349.1 mmboe of our proved undeveloped reserves to proved developed reserves in Brazil in 2010, mainly through the start-up of production from the P-57, FPSO Capixaba and FPSO Cidade de Santos platforms in the Campos and Santos basins. The volumes we converted from proved undeveloped to proved developed reserves in Brazil exceeded the volumes of proved undeveloped reserves added to our domestic reserves in 2010 as a result of new discoveries in the pre-salt regions of the Santos Basin and technical revisions in the Campos Basin consisting of historical adjustments and increased production from pilot projects. The 52.2 mmboe net addition of proved undeveloped reserves outside of Brazil was mainly due to newly estimated reserves in Peru. All reserves volumes described above are “net” to the extent that they only include Petrobras’ proportional participation in reserve volumes and exclude reserves attributed to our partners.

In 2010, we invested a total of U.S.$9.72 billion to convert proved undeveloped reserves into proved developed reserves, of which approximately 92.8% (U.S.$9.02 billion) was invested in Brazil. We converted a total of 1,373.0 mmboe of proved undeveloped reserves to proved developed reserves in 2010, approximately 98.3% (1,349.1 mmboe) of which were Brazilian reserves. In recent years, we have developed projects and increased investments to convert our proved undeveloped reserves into proved developed reserves.

We had a total of 4,354.27 mmboe of proved undeveloped reserves at year-end 2010, approximately 7.4% (323.52 mmboe) of which have remained undeveloped for five years or more as a result of several factors affecting development and production, including the inherent complexity of ultra-deepwater developments projects, particularly in Brazil, and constraints in the capacity of our existing infrastructure. A portion of the 323.52 mmboe of our proved undeveloped reserves that have remained undeveloped for five years or more consist of heavy crude oil located in the Parque das Baleias (Whales Park) area of the Campos Basin offshore Brazil. We originally disclosed these reserves as proved undeveloped reserves between 2003 and 2004 after completing a development plan for the Parque das Baleias region. However, due to the discovery in 2007 of more valuable light crude oil in the same region, we deliberately postponed production from these proved undeveloped reserves until we could allocate the necessary ultra-deep water infrastructure and production resources to develop both our existing proved undeveloped reserves of heavy crude oil and our recently discovered pre-salt light crude oil simultaneously. We initiated an extended well test in the pre-salt reservoirs of the Parque das Baleias region in 2008, and in 2010 we started production through FPSO Capixaba. As a result, we have reclassified a portion of the proved undeveloped reserves in the Parque das Baleias region that have remained undeveloped for five years as proved developed reserves at year-end 2010. The remaining portion of our proved undeveloped reserves that have remained undeveloped for five years or more consist of reserves in shallow water fields in the Santos Basin, for which we have invested the necessary infrastructure, including platforms and wells, to be able to begin production in the first half of 2011.

T.i.a. Dew

[DFRAI]

Ghawar has 50% watercut

i am too lazy to look it up...however

in the absence of something more official,based on reservoir being 40 yrs old or so, based on a myriad of other thigs...its believable.

July 4, 2004 Updated June 08


There are four oil fields in the world which produce over one million barrels per day. Ghawar, which produces 4.5 million barrels per day, Cantarell in Mexico, which produces nearly 2 million barrels per day, Burgan in Kuwait which produces 1.7 million barrels per day and Da Qing in China which produces 1 million barrels per day. Ghawar is, therefore, extremely important to the world's economy and well being. Today the world produces 82.5 million barrels per day which means that Ghawar produces 5.5 percent of the world's daily production. Should it decline, there would be major problems. As Ghawar goes, so goes Saudi Arabia.

The field was brought on line in 1951. By 1981 it was producing 5.7 million barrels per day. Its production was restricted during the 1980s but by 1996 with the addition of two other areas in the southern area of Ghawar brought on production, Hawiyah and Haradh, the production went back up above 5 million per day. In 2001 it was producing around 4.5 million barrels per day. There have been 3400 wells drilled into this reservoir

I have noted elsewhere that the data I am being told by engineers who have actually worked on Ghawar, that this decade will see it's peak. (Morton, 2004 PSCF in press). Others have noted how the percentage of water brought up with the oil has been growing on Ghawar. There are published reports that Ghawar has from 30-55% water cut. This means that about half the fluids brought up the well are water. Today the decline rate is 8%. Thousands of barrels per day of production must be added each year.

"The big risk in Saudi Arabia is that Ghawar's rate of decline increases to an alarming point," said Ali Morteza Samsam Bakhtiari, a senior official with the National Iranian Oil Company. "That will set bells ringing all over the oil world because Ghawar underpins Saudi output and Saudi undergirds worldwide production." JEFF GERTH, "Forecast of Rising Oil Demand Challenges Tired Saudi Fields," February 24, 2004 New York Times, Late Edition - Final , Section A , Page 1 , Column 3 http://www.peakoil.net/Newspapers/20040224NYTTiredSaudiFields.doc

Unfortunately for the world, few know the actual state of Ghawar. Cumulative production from the field is 55 billion barrels. In 1975 Exxon, Mobil, Chevron and Texaco estimated that the ultimate recovery from the field would be 60 billion barrels. Without a doubt, new technologies have moved EURs from that which was possible in the mid 1970s. But the Saudis claim that the field can recover another 125 billion barrels.(this info come from http://www.simmonsco-intl.com/files/IEA-SOM.pdf slide 25 accessed 7-5-04) For someone like me who has spent a lifetime in the oil industry trebling the recovery factor is a fantasy we all wish we could do. But no one has ever figured out how. Thus, I doubt very much their claims, especially in light of the maps shown below.

But this is what is happening

"Saudi oilmen are usually a taciturn bunch, guarding their data like state secrets. But this was post September 11 and Riyadh was wooing western journalists and trying to restore the Saudis' image as dependable, long-term suppliers of energy--not suicidal fanatics nor terrorist financiers. And it was working.
"Then the illusion slipped. On a whim I asked my hosts about another , older oilfield called Ghawar. It is the largest field ever discovered, its deep sandstone reservoir at one time had held perhaps one-seventh of the world's known oil reserves, and its well produced roughly one of every 12 barrels of crude consumed on earth. In the iconography of oil, Ghawar is the mythical giant that makes most other fields look puny and mortal. . . .
"At Ghawar,' he said, 'they have to inject water into the field to force the oil out,' by contrast, he continued, Shayba's oil contained only trace amounts of water. At Ghawar, the engineer said, the 'water cut' was 30%."
"The hairs on the back of my neck stood up. Ghawar's water injections were hardly news, but a 30% water cut, if true, was startling. Most new oilfields produce almost pure oil or oil mixed with natural gas--with little water. Over time, however, as the oil is drawn out, operators must replace it with water to keep te oil flowing --until eventually what flows is almost pure water and the field is no longer worth operating."
"Ghawar will not run dry overnight, but the beginning of the end of its oil is in sight." Paul Roberts, "New Tyrants for Old as the Oil Starts to Run Out, " Sunday Times (News Review), May 16, 2004, p. 8

But this year at the Offshore Technology Conference some were talking about a 55% water cut for Ghawar. Part of this is because the Saudi's inject large quantities of water into the reservoir and much of it comes back to the producing wells immediately though the system

"Saudi Aramco is injecting a staggering 7 million barrels of sea water per day back into Ghawar, the world's largest oilfield, in order to prop up pressure. It accounts for 30% of Saudi oil reserves and up to 70% of daily output." "Doubts grow about Saudi As Global Swing Producer," Aberdeen Press & Journal Energy, April 5, 2004, p. 15

But several people are becoming concerned about the ability of the Saudi's to maintain production. Here is a tidbit from the Aberdeen Scotland Newspaper of a few weeks ago.

"It seems a growing number of analysts are falling into line with the Simmons & Company International view that Saudi Arabia may be running out of steam and may not be able to perform the role of global swing producer for many more years, despite being credited with oil reserves in the order of 260 billion barrels. The Centre for Global Energy Studies hinted at the beginning of the year that the kingdom appeared to be heading for difficulties. Now one of its analysts has said that having reserves does not equate to production capacity. Citing the Haradh field, he said it required 500,000 barrels per day of water injection to get out 300,000 bpd of oil. Moreover the problem is even more serious in the Khurais field." "Doubts grow about Saudi As Global Swing Producer," Aberdeen Press & Journal Energy, April 5, 2004, p. 15

Since I am more and more working in the area of reservoir management, one of the things I have learned is that when you have to inject 500k barrels of water to get 300k barrels of oil, you will cycle water through that field like crazy. You won't up the pressure so you are probably cycling at least 200,000 barrels per day of water through the field.

For those who don't think there is a problem with the Saudi production, here are a couple of pictures of Ghawar from a 1996 report which shows the size of a 3d seismic section on the overall Ghawar field. The next picture is from the 3D showing the injection wells and the line in 1996 where the water had encroachd.



The Uthmaniyah area is the oldest producing area on Ghawar. But the next picture shows that to the right of the line the oil is gone and all that is left is water The solid circles are or were oil producers. the open circles with arrows through them are where the water is injected to the reservoir to push the oil towards the producers (On the picture below this is from the right to the left. You can see that in this area, in 1996 the water had encroached halfway across Ghawar.The water must have moved further to the west today, 8 years later.





the various areas of Ghwar are outlined at a map found at http://web.inetba.com/gregcroftinc/images/Ghawar_map.gif





What is the future of Ghawar and Saudi production? It is not good.

"All production comes from 'very old fields', with no major exploration success since the 1960s, and almost every field has high and rising water cut.
"Saudi Aramco is injecting a staggering 7 million barrels of sea water per day back into Ghawar, the world's largest oilfield, in order to prop up pressure. It accounts for 30% of Saudi oil reserves and up to 70% of daily output." "Doubts grow about Saudi As Global Swing Producer," Aberdeen Press & Journal Energy, April 5, 2004, p. 15

and

"The Wocap simulations for Saudi oil are presented in Fig. 5. They clearly show a long plateau at 8-10 million b/d. Here the main question is: How long can Saudi Arabia plateau at that level? Or in other words: Will it age gracefully? Much will depend on Ghawar. ?
?With 100 billion bbl of crude oil produced so far, Saudi Arabia should not be far from the midway point of its proved reserves of 260 billion bbl?that means just 10 years at the going rate of roughly 3 billion bbl/year. Bearing in mind the "spurious revision" of 1990 that boosted proved Saudi reserves to 257. billion bbl from 170 billion bbl, the midway point could happen even sooner than that. ?
?Furthermore, the 35 billion bbl produced during 1990-2002 has not been accounted for, as Saudi "proved reserves" were still being reported at 260 billion bbl by the close of 2001. ?A. M. Samsam Bakhtiari, ?Middle East Oil Production to Peak within next decade.? Oil and Gas Journal, July 7, 2003, p. 24

One of the interesting things about Ghawar is the nature of its reservoir which provides an argument against an ideology I fight all the time, Young-earth Creationism. Ghawar is largely made of dung, which would be hard pressed to be concentrated during a global flood and thus contradicts the young-earth creationist claims.

?Most massive and nonporous limestones contain textures made by invertebrate animals that ingest sediment and turn out fecal pellets. Usually, the pellets get squished into the mud. Rarely do the fecal pellets themselves form a porous sedimentary rock. In the 1970s the first native-born Saudi to earn a doctorate in petroleum geology arrived for a year of work at Princeton. I used the occasion to twist Aramco?s collective arm for samples from the supergiant Ghawar field. As soon as the samples were ready, I made an appointment with our Saudi visitor to examine the samples together using petrographic microscopes. That morning, I was really excited. Examining the reservoir rock of the world?s biggest oil field was for me a thrill bigger than climbing Mount Everest. A small part of the reservoir was dolomite, but most of it turned out to be a fecal-pellet limestone. I had to go home that evening and explain to my family that the reservoir rock in the world?s biggest oil field was made of shit.? Kenneth S. Deffeyes, ?Hubbert?s Peak? (Princeton: Princeton University Press, 2001), p. 57-58

Back to the serious issue of Ghawar, an almost poetic ode to the death of Ghawar can be found at http://www.newcolonist.com/ghawar.html. As Ghawar goes, so goes the world.

Postscript: I went to a talk Oct. 2004 at the Society of Exploration Geophysicists Convention, on an attempt to collect 4D seismic over that field (4D is time-lapse 3d seismic. Two surveys are acquired in identical patterns after a period of time in which oil is produced from the field. we use it to monitor fluid flow). At Ghawar, the world's largest field, they began water injection when the field was put on line back in the early 50s. The initial injector well were just beyond the initial oil water contact of the Arab D reservoir. As the oil was extracted, a formerly producing well would be turned into an injector (a producer would become an injector), so you will see what it looks like today after lots of producers have been turned into injectors. Water is injected into the carbonate reservoir in order to maintain reservoir pressure and allow the field to be produced at 5 million barrels per day. If the pressure were to drop, the production rate would fall quickly. One of the things to keep in mind as you look at the model below is that the original oil column was 1300 feet thick. Today, the green layer is less than 150 feet thick. One must draw the necessary conclusions that most of the oil has been removed from Ghawar. The original article can be found at http://abstracts.seg.org/ease/techprog/downloadpaper?paper_id=817&assigned_num=762



You can see for yourself, that the area occupied by oil is not very large compared with where the initial injectors were placed. One friend, a reservoir engineer, to whom I showed this picture said "It's over! Kiss your life-style goodbye!"

Written Aug 2006: A few weeks ago, I plotted the Saudi production from the EIA. I saw an interesting pattern. I waited another month and the pattern persists. Since January 2006, the price of oil has been climbing steadily. But starting in October 2005, the Saudi oil production has been steadily but slowly dropping. This pattern since April 2004 looks much like the production pattern I saw in the UK when I moved there in 2000. Thus, it made me wonder if the Saudi's have finally begun to drop. Here is the chart.

Updated July 2007. The continued, gentle decline of Saudi production, even with the price rising again from its January low is a concern. This time I plotted world demand (on this scale in units of 10,000 bbl/d. One can see that demand actually rose as Saudi Production dropped. This is a very worrying sign.

Updated June 2008. The graph below shows that the Saudi production which began declining in Oct 2008 was increased a bit in early 2008, but, it hasn't matched the previous high production. Note the price of oil and how it is spiking. Demand for oil is clearly outstripping supply and the high price is not bringing new oil supplies to market. One should be aware that a google search of the news a few weeks ago on OPEC cheating, didn't bring up a single hit. The OPEC members are not cheating on their quotas--something they have always done before. They are not suddenly honorable. They simply don't have the oil to pump.

One other update. Because of the secrecy Saudi Aramco has, about the only way to get information is via word of mouth from friends. A friend told me that Saudi Arabia is only replacing 10% of the oil they pump out of the ground, even today. That doesn't bode well for world oil supplies in the future.



What I ask myself is this. The Saudis need the money (see http://home.entouch.net/dmd/saud.htm) so why would the Saudis restrict production at a time when the price is rising and setting a new price record? This is a curious thing and makes me suspect that all is not well with Saudi production. Only more time will tell, but if this is the first sign of Saudi decline, then the price of oil is about to scream up to higher levels.

Added June 17,2008: The BP Statistical Review of World Energy 2008 just came out. For two straight years now, the Saudi's oil production has fallen. It is falling at a 4% rate which is about what one sees when countries peak out oil production. While I do beleive that this year they will get a slightly higher production than they had in 2007, it doesn't appear that the Saudi's have the oil they claim. This weekend when the Sauds announced they would add 300,000 to 500,000 bbl/day to their sales, the oil futures market yawned. The prices remained flat. Why? The oil they are bringing onto market is sour and/or heavy and those are a kind of oil that is not wanted.

Below is a graph I made by subtracting 2006 production from 2007 production. The data comes from the 2008 BP Statistical Review. The interesting thing is that Saudi Arabia has the largest drop in production. They lost 440,000 bbl/day in production last year. One note on another country. Russia is heavily up in production in 2007 but already it is clear that Russia will lose about 4% of its production in 2008.









cited online at http://www.energybulletin.net/1269.html
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cited online at http://solutions.synearth.net/2004/08/23?print-friendly=true
cited online at http://www.safehaven.com/forums-6273.htm
cited online at http://www.btinternet.com/~nlpwessex/Documents/saudidoubts.htm
cited online at http://www.investingadvisers.com/articles/Dec04/trouble_in_the_worlds_largest_oil%20.php
cited online at http://www.d-n-i.net/fcs/crisis_unfolding.htm

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