PetroRio begins Phase 3 of Polvo’s revitalization plan

Brazilian oil and gas company PetroRio has begun Phase 3 of its revitalization plan of the Polvo field located offshore Brazil with an aim to increase the field’s recovery rates and extend its life.

Polvo FPSO; Source: BW Offshore

This follows Phase 1, which took place in the first quarter of 2016, resulting in a 20% increase in production and reserves, and Phase 2, which took place in 2018 and further increased production by 65%, of Polvo’s Revitalization Plan.

For Phase 3, twenty-two prospects with oil potential were mapped, of which up to four have been selected for drilling and 18 kept for future campaigns.

PetroRio said on Monday it would initiate the campaign after having completed maintenance works on the drilling rig owned by the company. This maintenance consists of a major overhaul of some equipment.

The first stage of the 2019 Drilling Campaign will include a workover and the drilling of two wells. The workover, which is expected to take ten days from start to finish, consists of the substitution of an electric submersible pump (ESP) in the POL-R producing well and is expected to increase production by approximately 300 barrels of oil per day.

Once finished, PetroRio will begin the drilling of the Ipanema (POL-N) and Leblon (POL-Na) prospects. The primary objectives of both prospects will test 1,900 meter-deep carbonates from the Quissamã formation, with rock quality and API characteristics similar to other carbonate reservoirs in Polvo. The prospects’ secondary objectives to be tested are sandstone from the Carapebus formation.

The company estimates that the drilling of each well will take approximately two months, and that the initial investment for the first two wells will be approximately $20 million. Furthermore, PetroRio also estimates that the drilling operations could add between 3 to 6 million barrels to its reserves, to be confirmed by the reserve certification report.

Once the first stage of the 2019 Drilling Campaign is concluded, the collected data will be used to decide on the second stage, which could include the Arpoador and Piratininga prospects.

The total investments for Phase 3 of Polvo’s Revitalization Plan could add up to $60 million, depending on the success and completion of all four prospected wells.

 

Funding

 

Aiming at reducing the company’s cost of capital and funding working capital at a low cost, in September 2019 PetroRio signed a line of credit of $48 million with Citibank, at a cost of Libor + 3% p.a.

“PetroRio’s finance team is continuously working towards optimizing the company’s capital structure and maintaining cash levels for further investments in Polvo, Frade and potential M&As. This allows the company to carry on its investment plans, keep minimum cash position for operations and to be nimble in order to seize any upcoming opportunities that may sprout from the current business-friendly Brazilian O&G scenario,” the company said.

PetroRio maintains low leverage with a decreasing Net Debt/EBITDA index due to the new free cashflow generation level, which stems from recent investments and acquisitions.


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