Brazilian Pre-salt

Petrobras is betting its future on Pre-salt assets, promising to rise its production

Pre-salt Polygon

The layer known as pre-salt is located in ultra deep waters, between 1.900 and 2.400 m, in Southeast offshore of Brazil.  The structure was created around 160 million years ago, when the supercontinent Gondwana began to break apart, giving place for the South American and African continents.

The name “Pre-salt” means that the reservoir rock is located below a layer of salt, which can exceed 2.000 m thick in some areas. Considering that the water depth can reach over 2.000 m, the pre-salt reservoir can be located over 7.000 m depth.

The first discoveries in Brazilian pre-salt layer occurred during the 1980s. However, these discoveries were less significant especially due to the lack of technology. Therefore, until 2006 the exploration activity had been mainly focused on post-salt objectives, in other words, above the salt layer.

Thanks to the technological progress, in 2006 the pre-salt layer has emerged as a new exploration frontier that has shown outstanding outlook so far.

The area known as “The Pre-salt Province” or “The Pre-salt Polygon” covers approximately 149.000 Km2 offshore and it’s about 300 km from the coast, in a band stretching from the north of the state of Santa Catarina to the south of the state of Espírito Santo, in water depths up to 2.000 m and reservoirs hanging between 3.000 and 5.000 m below the seabed, of which about 2.000 m is a thick layer of salt. It is a new exploratory frontier nearby existing operations and the main demand centers.

As the this prospect has low risk, high potential of finding big reservoirs, and in attempt to better control production pace, it was stablished by law a new exploration and production (E&P) regime just for the pre-salt area and strategic areas, the Production Sharing Agreement (PSA). Petrobras was also granted the right to produce up to 5 billion of barrels from pre-salt, in an agreement called Tranfers of Right (onerous assignment), in additional to the common concession regime. Thus, there are three regimes inside the pre-salt polygon, which despite its hugeness, it can also present some extra complexity, especially in case of unitization processes, as discusses in the section Top issues faced by the Brazilian Oil & Gas industry

Up to now there were already 5 PSA rounds, granting 14 blocks, but only Libra (Mero field) is already producing. Nevertheless, there are other fields producing O&G in pre-salt but under the concession regime, as they were granted before the pre-salt was found and thus the new E&P legislation be set. The high exploitation potential and quality of the hydrocarbons from these blocks, greatly improved the Brazilian reserves perspective and participation on world stage. According to the Brazilian National Regulatory Agency of Petroleum Natural Gas and Biofuels (ANP), pre-salt accounted at the end of 2017 for 56% of the crude oil reserves and 53% of the gas reserves, being in total 15 billion boe.

Pre-salt Discoveries and the New Regulatory Framework

In July 11, 2006 Petrobras communicated ANP that found light oil in a new exploratory frontier, after drilled the first well at the block BM-S-11, bellow more than 2.000 meters of a salt layer, at a water depth of 2.140 meters, 250 km from the south coast of Rio de Janeiro, and that more investments were needed to evaluate the volume and productivity of the play. This discovery marks the start of pre-salt era.

In 2007, Petrobras reported test results performed with 08 drilled wells in the pre-salt area to the National Energy Policy Council (CNPE). These results pointed to a new significant oil province in Brazil, with high volumes of recoverable O&G. In view of this, CNPE issued Resolution No. 6 of November 8, 2007 that triggered a great change in the regulatory paradigm of the national oil industry. In article 2, the Resolution determined the withdrawal of 41 exploratory blocks, only one week before the presentation of the bids for bidding round 9. Additionally, in article 4, the same resolution ordered the Ministry of Mines and Energy to assess, as soon as possible, the necessary changes in the legal framework in order to address this new paradigm of E&P of O&G in Brazil. Afterwards, an Inter-ministerial Commission was set up in order to examine and recommend the changes in the legal framework.

As a result, at the end of August 2009, the federal government disclosed proposals for major changes to the country’s regulatory framework, governing the E&P of O&G in the pre-salt region and strategic areas outside the pre-salt region (i.e. new areas with analogous characteristics to those of the pre-salt area, which represent a low exploration risk and high potential for oil production). The package of laws was approved in 2010 and is composed by the following laws:

Law No. 12.351 of December 22, 2010 - laid out the production sharing regime for E&P activities in the unlicensed pre-salt and strategic areas, under which Petrobras was granted operatorship and a participating interest of at least 30%. In addition, the same Law instituted a Social Fund to manage the country’s revenues received from production sharing contracts, including the federal government’s share of signature bonuses, royalties and receipts from the sale of its share of production from production sharing contracts.

Law No. 12.304 of August 2, 2010 - provided the creation of a new wholly state-owned company Pré-Sal Petróleo S.A. (PPSA), responsible for managing the federal government’s interest in production sharing contracts (PSCs).

Law No. 12.276 of June 30, 2010 - established an onerous assignment of rights, by the State to Petrobras, granting to the last the right to produce up to 5 billion boe in pre-salt areas, in exchange of larger ownership share.

Some recent changes in the E&P legislation referring to Pre-salt were:

Law No. 13.365/2016 of November 29, 2016 – relaxed the Law 12.351/2010, enabling Petrobras to express its priority on the interest of acting as operator (with a minimum of 30% stake) of the consortiums formed to explore blocks tendered under the production sharing regime.

Decree No. 9.041/2017 of May 2017 – regulated this preemptive right of Petrobras to act as operator in the consortia under the production sharing regime.


Thus, now Petrobras now has the right to choose the auctions that will participate. Once the technical parameters of each auction are published, Petrobras has 30 days to express interest in participating. The state-owned company must also indicate the percentage that is interested. The CNPE will establish the percentage of Petrobras´ participation in the tender for the pre-salt blocks, which must be at least 30%. A tender will be opened for each block, if Petrobras does not exercise its preemptive right, but the company can still participate, under the same conditions as the other competitors.

In the PSA bidding rounds the winning companies are those that offer to the Brazilian State, from a fixed minimum percentage, the greater percentage of oil and natural gas produced (that is, the greater percentage of oil surplus). The oil surplus is the share of the production of oil and or natural gas to be distributed between the State and the oil company, according to the criteria defined in the contract, resulting from the difference between the total production volume and the cost oil and to royalties due. The cost oil is the portion of the production of oil and or natural gas corresponding to the costs and investments made by the contracted company in the execution of the exploration, production and decommissioning activities. Cost oil recovery is applicable only in case of commercial discovery.

Likewise as in the concession-based framework, ANP will be responsible to promote the  pre-salt bidding rounds and supervise the contracts.

Players on the pre-salt

After the five PSA rounds occurred so far since 2013, the results shows a high and expected dominance of Petrobras, but there are also other 13 oil companies participating in the 14 assets in the pre-salt polygon under PSA, some with already significant presence. Petrobras operates 8 blocks/areas, being followed by Shell (3) and BP (1), ExxonMobil (1), and Statoil (1). As the sole operator rule of the pre-salt was withdrawn in 2016/2017, the competition should keep increasing with more players emerging in the pre-salt after the next PSA bids, or the presence of the actual players non-Petrobras enlarge. In this manner, it is important highlight that there is already three more bids programmed for the pre-salt, PSA PSA 6 in 2019, PSA 7 in 2020 and PSA 8 in 2021. Additionally, there is a Transfer of Rights Surplus Bidding Round  to occur in 2019          

In the first PSA round in 2013, as Petrobras the sole operator rule was in place, even with 11 companies subscribed, a consortium formed by five companies was the only bidder and won the license. Thus, the consortium offered the minimum percentage of profit oil (41.65%).

Players on the pre-salt under PSA and their shares in the blocks

The changes in the legislation, allowing e.g. other companies to be operator of blocks of the pre-salt and the decrease of the local content requirements (more detailed in the section Local Content), indeed has been managing to increase the attractiveness of the PSA bids. Two metrics, e.g., that can evidence that pre-salt is now definitely on the investment plan of the majors oil companies are: the number of offers made for the blocks and also the oil surplus offered, being in some cases way higher than the minimum required.  For instance, some blocks received 3 (Peroba) or even 4 (Uirapuru) offers, and the area of Entorno de Sapinhoá reached 80% of oil surplus offered, while the minimum was only 10,34%.

Results of the pre-salt rounds (PSA)

Blocks offered in the bidding rounds PSA 4 and PSA 5 

Source: ANP

Nevertheless, as previously explained, there are several blocks/fields inside the pre-salt polygon, but most are under concession regime. The O&G production of the pre-salt in December 2017 came from 15 fields, being only one (Mero) under PSA and the other 14 are under concession regime. Within these 14 fields in the pre-salt and under concession, 10 is sole operated by Petrobras, but in 4 fields (Lula, Sapinhoá, Lapa and Sururu), even though also operated by Petrobras, other companies participate, such as: Shell, Repsol Sinopec, Total and Petrogal.

Pre-salt production

Despite only one field (Mero - from the Libra area) from the PSA rounds being in production, the pre-salt is already responsible for half of the O&G produced in Brazil, reaching at December of 2017  1.6 million boe/d (1.3 million b/d and more than 50 million m3/d of natural gas). This production came from only 85 wells located at 15 fields. The average production per well is more than 20 thousand barrels, with some wells reaching circa of 40 thousand. These figures illustrate one of the reasons why IOCs are betting high to enter in this play.

The O&G production of the pre-salt is being so robust and growing so fast, that is being able to make the country level rise, even though the two other plays as conventional offshore (also called post-salt) and onshore presenting accelerate decline curves, as shown in the section Brazilian E&P Overview.

The pre-salt production started in 2008 in Jubarte field, in Campos basin. After that, many discoveries were made in the pre-salt layer, mainly in Santos basin, notably in the Lula block (where Mero field is located). Because of the exploratory efforts in the area, pre-salt production jumped from 9.000 boe/d in 2008 to 1,6 million boe/d in December 2017. The exploitation of the reservoirs in this play was speeded up due to the already existence of infrastructure for the production of O&G for the fields under concession regime and inside the pre-salt polygon. 

Pre-salt Oil and Gas production ramp-up and milestones (1 Million boe/d)

Source: ANP and Petrobras

Despite the O&G production of the pre-salt in December 2017 (1.685.084 boe/d) had come from 15 fields, 99% came from 9 fields and just Lula, Sapinhoá and Jubarte concentrating 88% of it.

Pre-salt production by field (December 2017)

The break-even of the pre-salt has been also progressing well. In 2015, Petrobras informed that the break-even price for pre-salt projects were circa of US$ 45 per barrel, including taxes, but without considering the investments with infrastructure for offloading the gas. When considering these extra costs related to offloading of gas, the company informed that the break-even price could increase between $5 and $7 per barrel. Furthermore, these figures took into account a well production rate of 15-25 thousand barrels per day. However, several wells producing in the pre-salt fields are surpassing this average flow rate, as previously said, producing more than 30 thousands boe/d at the end of 2017.

Top ten Pre-salt producing wells (boe/d) – December 2017

These high level of productivity per well decreases the need of wells to reach the full capacity of the production system (FPSO), thus contributing to decrease the break-even and increasing projects feasibility, even in low oil price environments. In the Business Plan 2018 – 2022, presented in December 2017, Petrobras informs that the break-even considered for the Mero project in the pre-salt is around US$ 35/barrel.

Even though the pre-salt development has been very successful up to now, managing to overcome the initial challenges such as long distance from the coast, high depth including overpass 2.000 meters of salt layer, capital discipline and concentration of contaminants (CO2  and H2S) can still poses some threats, as new fields develops. On the other hand, as new pre-salt projects develops more it will stimulate technological development, searching to increase its economic viability and operational safety, in this digital transformation era that the oil sector is more and more going through. Thus, the expectation for the delivery of new enabling solutions in time is optimistic. These challenges and the unitization process, which can be more complex in the pre-salt polygon are addressed in the section Top issues faced by the Brazilian Oil &Gas industry.


Brazil is in a fortunate position concerning the future development of pre-salt oil and natural gas reserves and production. However, the geologic potential is necessary, but insufficient to guarantee the social and economic benefits coming from these resources.

The discovery of pre-salt and its initial production is occurring in a very efficient fashion. Only three years later of the first discovery, Santos basin reached 1st Oil, in Tupi EWT (Lula field). Considering the uncertainty and difficulties of the new geological frontier, it can certainly be characterized as a success case.

Petrobras, is betting its future on pre-salt assets, promising to rise its production considerably, despite its delicate situation, and is indeed managing to accomplish. Additionally, as now the Brazilian national company is working more in partnerships with other IOCs, such as Total, CNPC, BP, ExxonMobil and Statoil, it should contribute even more to the development of technological solutions and progress of the O&G production in the country.

Currently, the future of pre-salt is filled of expectations and high perspectives, but with some challenges. Thanks to the pre-salt, Brazil has a great potential to consolidate itself in the group of world biggest oil reserves, production and exporter, influencing even more the oil and gas international scenario.

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