RIO DE JANEIRO (Reuters) - 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 $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, Wael Sawan, Executive Vice President for Shell’s deepwater division, told Reuters.
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.
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 President Michel Temer had made the reserves a more attractive proposition, Sawan said. If Shell was unable to produce the oil at below $40 a barrel, it would not be able to take the blocks on, he added.
Like other oil majors, Shell has cut costs since oil prices crashed in 2014, and has reduced participation in higher cost oilfields.
Shell is the second-biggest oil producer in Brazil, and Petrobras’s no. 1 partner in pre-salt production.
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, he said. That was a few months later than the July date originally slated.
Brazilian state-run oil firm Petroleo Brasileiro 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 multi-billion dollar Vito project in the U.S. Gulf of Mexico in 2018, 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 U.S. President Donald Trump ends the moratorium on drilling in the area, he said.
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,” Sawan said.
Reporting by Simon Webb and Alexandra Alper, additional reporting by Marta Nogueira; Editing by Andrew Hay