Positive outlook for the Latin American oil and gas industry in 2011

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13 January 2011, Oil, Gas

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After a period of market retraction and weak expenditure for the Latin American oil and gas industry, the region is expected to witness a boom in both production and investment in 2011. Driven mainly by solid international demand (which is expected to grow by 3.6%) and aggressive investment plans from national oil companies (NOCs), Latin America looks set for a prosperous year. Datamonitor forecasts total offshore oil production of nearly 4.6 million barrels per day (b/d), and a total capital expenditure (CAPEX) of nearly $21bn.

Brazilian NOC Petrobras is expected to be one of the regional frontrunners, and will invest $224bn in its exploration and production (E&P) activities over the next five years. It plans to increase both its production levels - which currently stand at nearly 2.0 million b/d - and its total reserves; in addition, strengthening its expertise in deepwater areas and optimizing recovery factors will be investment priorities. Petrobras also plans to reevaluate existing reserves, while the harnessing of potential reserves will contribute to the growth of production and CAPEX. More importantly, the company's extensive production program, focused on new frontier areas that require the use of advanced technology (such as the Pre-Sal layer), will be a key factor driving CAPEX.

Similarly, Colombian oil and gas giant Ecopetrol has robust production and investment plans for the future. The company aims to be producing nearly 1.0 million b/d by 2015, up from its current level of nearly 650,000 b/d, and is also expected to invest over $8bn in E&P activities in 2011. Ecopetrol plans to increase its exploratory activities in offshore and new frontier markets, and also has ambitions to develop heavy crudes and unconventional hydrocarbons, and will concentrate its efforts in the Llanos Orientales region.

However, Datamonitor observes that rising costs may have an impact on the extent to which companies are able to increase CAPEX. The 2010 Macondo oil spill in the Gulf of Mexico led to even greater concern among global investors and industry participants about health, safety, and environment (HSE) issues, particularly in new frontier areas such as deepwater and ultra-deepwater. As a result, strident HSE controls are expected to add further upward pressures on cost, and to impact upon the investment outlook for many companies operating in these areas.

That being said, robust production expansion plans, combined with the need for sophisticated services and solutions in order to explore new frontier areas, will drive investment in Latin America in 2011 and beyond. The region is expected to see strong growth in total CAPEX, and will play an important role in the global oil and gas scenario.

Source: Datamonitor

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