Petrobras plans to increase its exploratory activities over the next four years, according to its Business and Management Plan 2018-2020 launched in late December 2017.

The Brazilian major intends to drill an average of 29 exploratory wells annually by 2020, nearly double the average number of wells drilled in 2016 and 2017.

Petrobras was among the companies that gained offshore E&P rights in the latest actions in Brazil. Pedro Parente, the company’s CEO, admitted that more drilling rigs must be contracted to carry out exploratory activities.

“We will have to look for new rig contracts” for the company’s exploratory program, Parente said.

The company finds itself in a precarious situation, with 15 of its current rig contracts set to expire in 2018.

Petrobras ended 2017 with 30 drilling rigs under contract, practically double that of BP (14), Shell (13), Chevron (12) and Total (12), according to a survey from the Bassoe Offshore consulting firm. Petrobras steadily grew its contracted fleet until 2013. But global E&P activities began to slow as oil prices started to plummet a year later.

According to Bassoe’s survey, the fleet of drilling rigs and other subsea vessels contracted by Petrobras in 2013 included 70 units. This number dropped to about 50 in 2015 and fell to 35 in 2016.

“In order to reduce the idleness, Petrobras’ rigs perform various tasks in addition to drilling, with the duration of each activity between weeks and months, such as completions, maintenance in wells in operation and abandonment of already closed wells,” a source from Petrobras said.

In 2017 Petrobras only used 13 drilling rigs—half of the fleet. According to Petrobras, more than 60 interventions were made in 2017.

Without other major E&P projects, Petrobras has focused on drilling activity—mostly production work— in the Libra Field.

Now Petrobras works to adjust its fleet, which is considered swollen by the market, to tame drillship idleness. Petrobras already ended contracts for seven rigs (P-3, P-10, P-16, P-17, P-23, P-59 and P-60).

But this comes as the company gears up for more exploratory drilling work.

Currently, three rigs are involved in lawsuits related to contract terminations made by Petrobras. A fourth drilling rig was moved overseas, and the contract for a fifth, the Alpha Star (QGOG), ended.

Good news is that at least one of the rigs involved in lawsuits has moved toward settlement. Diamond Offshore Drilling Inc. said the company and Petrobras have agreed to settle the suit and amend the Ocean Valor drilling contract.

According to the agreement, the rig will be in an extended standby period retroactively from July 2017 to the end of September 2018 at a rate of $190,000 per day. The rig will then continue under contract with Petrobras through to the end of September 2020 at a rate of $289,000 per day. Diamond said it would book a one-off charge of $20 million in its fourth-quarter 2017 results to account for the adjusted standby rate.

Claudio Makarovsky, head of ABESPetro, Brazil’s oil service company association, is “cautiously optimistic” that Petrobras will sign new contracts by year-end 2018. However, he said the industry must be cautious.

“We had the auctions, which are already beginning to create a demand for drilling rigs. It’s going to be a busy year,” Makarovsky told Valor Econömico, a Brazilian newspaper.

On the other hand, José Firmo, head of Brazilian Petroleum, Gas and Biofuel Institute, is not so optimistic about the current drilling rig climate in Brazil. For him, 2018 will not be so good for Brazil.

“I think 2018 may be the year with the lowest drilling activity in Brazil in 30 years,” Firmo said. “Oil activity depends on the drilling ships and wells.”

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