Portugal's Galp eyes 40% oil output rise in Brazil with new field

Galp Energia expects its oil and gas production in Brazil to increase by approximately 40% in the coming years as the Bacalhau offshore field reaches peak production. The increase is tied to a joint venture with Sinopec, which owns 20% of the Bacalhau field operated by Equinor, with ExxonMobil holding the remaining stake. Production from the floating production, storage and offloading (FPSO) vessel, which has a daily capacity of 220,000 barrels, is expected to begin in the third quarter.

Analysis

Portugal's Galp (GALP.LS) anticipates a significant c.40% increase in its Brazilian oil and gas production from the current 110,000 barrels of oil equivalent per day (boepd) once the Bacalhau offshore field achieves peak output. This growth is linked to Galp's 20% stake in the Bacalhau field, held through a 70%-30% joint venture with Sinopec. The Bacalhau field, operated by Equinor (EQNR.OL, 40% stake) with ExxonMobil (XOM.N, 40% stake), features a new floating production, storage and offloading (FPSO) vessel with a daily capacity of 220,000 barrels, which arrived in February and is expected to commence production in the third quarter. While an exact timeline to reach plateau production of 220,000 boepd for Bacalhau has not been provided, it is anticipated to take longer than the 11 months observed for the Tupi-Iracema field's FPSO to reach its 150,000 boepd capacity, reflecting the larger scale of the Bacalhau operation. Equinor estimates the field holds over 1 billion barrels in recoverable reserves for its initial development phase. The overall sentiment surrounding this development is strongly positive, indicating an optimistic outlook for Galp's future production capabilities and its position within emerging energy markets.

Key Decisions for Investors

• Investors should view Galp's projected 40% production increase from the Bacalhau field as a material positive catalyst for future revenue and earnings growth, closely monitor the Q3 production start and subsequent ramp-up efficiency of the FPSO.
• Consider the operational expertise and financial stability brought by partners Equinor and ExxonMobil in the Bacalhau project, which could mitigate execution risks associated with large-scale offshore developments.
• Evaluate exposure to Galp (GALP.LS) in light of this significant production growth driver, while also noting the moderately positive sentiment for partner Equinor (EQNR) and neutral sentiment for ExxonMobil (XOM) in relation to this specific news.