17● The mammoth energy company returns to the
country as part of a long-term, oil-centered strategyIn November 2010, Exxon Mobil Corp. dispatched
workers to a platform off the coast of Brazil, hop-
ing to strike oil in one of the energy industry’s most
anticipated drilling programs. About 2,300 meters
(1.4 miles) below the surface, they bored into the
sea floor, drilling down more than 2 miles over the
course of almost two months before coming up dry.
It was Exxon’s third dry hole in the area in just over
two years. Defeated, the company abandoned explo-
ration in Brazil. Now, seeing the success others are
having there—and running into trouble elsewhere—
Exxon’s back.
In an industry shifting toward renewables,
Exxon is betting on Brazil as part of a $200 billion,
seven-year capital-spending plan that’s remarkably
large and focused on fossil fuels. A string of set-
backs with projects in Canada, Russia, and the U.S.
pushed the company to return to Latin America’s
top oil-producing nation as it seeks to revive years of
stagnating production. Brazil is the least developed
among Exxon’s major projects—which also include
Guyana, the U.S. Permian Basin, and gas terminals
in Mozambique and Papua New Guinea—but it offers
the most substantial potential prize: The country’s
deep waters are the site of the largest offshore oil
find this century.
“Brazil is basically the key oil play outside
the U.S.,” says Cleveland Jones, a consultant and
researcher at the National Institute of Oil and Gas in
Rio de Janeiro. “If you have $5 billion, where are you
going to invest it? Nigeria? Senegal? You have to allo-
cate investment according to potential.”
There are more than 100 billion barrels of
recoverable oil trapped under a layer of salt in
deep Brazilian waters, according to a study by the
State University of Rio de Janeiro, or UERJ. The
2006 discovery of the reserve kicked off foreign
interest in Brazil’s energy industry, long domi-
nated by state-owned Petrobras. The area has pro-
duced some of the world’s top oil wells, gushing
upwards of 60,000 barrels a day. That surpasses
output in the North Sea and Gulf of Mexico and
rivals the most productive wells in Saudi Arabia
and the Caspian Sea.
Brazil also has provided one of the most sta-
ble environments for oil companies, despite thenation’s frequent political turmoil. The country
respected oil contracts even when it was governed
by the left-wing Workers’ Party, and President Jair
Bolsonaro has promised to open the industry fur-
ther to outside investment. Other parts of the world
with giant oil reserves aren’t always so welcoming.
In Saudi Arabia, where drone attacks struck key
oil installations on Sept. 14, the industry is domi-
nated by the national oil company, and it’s a simi-
lar picture across much of the Middle East. Russia
and Venezuela are walled off by strict U.S. sanc-
tions, and exploration on Africa’s west coast is ham-
pered by corruption, theft, and tough fiscal terms
from governments.
European rivals Royal Dutch Shell Plc and Galp
Energia SGPS SA bought up Brazilian acreage as far
back as 2000 and drilled successfully for oil—Brazil
has become a major profit driver for Shell. Exxon
is making up for lost time: In the past two years it’s
spent 6.8 billion reais ($1.7 billion) on exploration
rights, making it the top leaseholder after Petrobras.
Exxon is preparing for exploration drilling
next year in the area it operates, spokesman Todd
Spitler says. “Brazil is the most important new
conventional oil play for the exploration indus-
try in the past decade and is a key investment in
Exxon Mobil’s future,” he says.
Investors are sure to have questions about the
new program. Exxon’s $30 billion a year in cap-
ital spending focused on oil and gas stands out
as exceptionally large in a world awash in crude.
Rival companies have shrunk their budgets and
are returning cash to investors through share buy-
backs. Not Exxon. Its annual budget, which will
rise to as much as $35 billion in the early 2020s, is
comparable to 2013 and 2014 levels, when oil was
trading at more than $100 a barrel. Crude trades
for well under $70 a barrel, and that’s after the
boost from the drone attacks.
While some rivals have gone cold on explora-
tion in favor of investment in renewables, Exxon is
standing firm as the model of a traditional energy
company, with oil and gas at the heart of Chief
Executive Officer Darren Woods’s business plan.
He’s seeking to gain an advantage by building
major projects while others retreat and claimsExxon Goes (^)
Deep
in Brazil
● Spending by energy
companies on oil and
gas exploration licenses
in Brazil since 2017
Exxon Mobil
6.8b reais
$1.7b
Petrobras
4.4b
Royal
Dutch Shell
3.4b
Chevron
1.9b
Equinor
1.8b
BP
1.4b
◼ BUSINESS Bloomberg Businessweek September 23, 2019