Mero Revolutions: countering CO2 in pre-salt Brazil?

The super-giant Mero field in pre-salt Brazil is not like its predecessors. While prolific, it has a 2x higher gas cut, of which c45% is corrosive and environmentally unpalatable CO2. Hence, Petrobras, Shell, TOTAL and two Chinese Majors are pushing the boundaries of deepwater technology. Our new, 16-page note assess four innovation areas, which could unlock $2bn of NPV upside. But the distribution of outcomes remains broad. $4bn is at risk if the CO2-challenges are not overcome.


Page 2 provides background on pre-salt Brazil, especially the flagship Lula project, which a new super-giant, Mero, is trying to emulate.

Page 3-4 contrast Mero to Lula, based on data from flow-tests. Mero has a 2x higher gas-cut and c8x higher CO2.

Page 5 reviews Petrobras’s own internal concerns over CO2-handling at Mero, and how they are expected to sway the decline rates at the field.

Page 6 outlines our valuation of the Mero oilfield, testing different CO2-handling scenarios. Our full model is also available.

Pages 7-8 review Mero’s FPSO design adaptations, to handle the field’s higher gas and CO2. These will be 2-2.5x larger FPSOs than Lula, by tonnage.

Pages 8-10 illustrate pipeline bottlenecks facing pre-salt Brazil. After considering alternative options (re-injection, LNG), we argue more pipelines may be needed.

Pages 10-12 describe riser innovations, which may help handle the risks of CO2-corrosion at Mero. One option is overly complex. The other is more promising.

Pages 12-16 cover the holy grail for Mero’s CO2, which is subsea CO2 separation. This would be a major industry advance, and unlock further billion-barrel resource opportunities. Upcoming hurdles and challenges are assessed.

Pages 15-16, in particular, cover Shell’s industry-leading deepwater technology, which may be helpful in maximising value from the resource, longer-term.

Does Technology Drive Returns?

Technology drives 30-60% of energy companies’ return on capital. This is our conclusion after correlating 10 energy companies’ ROACEs against 3,000 patent filings. Above average technologies are necessary to generate above-average returns.


For the first time, we have been able to test the relationship between oil companies’ technical abilities and their Returns on Average Capital Employed (ROACE).

In the past, technical capabilities have been difficult to quantify, hence this crucial dimension has been overlooked by economic analysis in the energy sector.

Our new methodology stems from our database of 3,043 patents, filed by the Top 25 leading energy companies in 2018. The data cover upstream, downstream, chemicals and new energy technologies (chart below) . All the patents are further summarised, “scored” and classed across 40 sub-categories.

The methodology is to correlate our patent-scores for each company with the ROACE generated by the company in 2018. We ran these correlations at both the corporate level and the segment level…

Results: patent filings predict returns

Patent filings predict corporate returns. In 2018, the average of the Top 10 Integrated Oil Majors generated a Return on Average Capital Employed (ROACE) of 11%, based on our adjusted, apples-to-apples calculation methodology. These returns are 54% correlated with the number of patents filed by each Major (chart below).

Technology leaders are implied to earn c5% higher corporate returns than those deploying industry-average technologies, which is a factor of 2x.

Upstream patent filings also predict upstream returns, with an 85% correlation coefficient. The data are skewed by one Middle East NOC, which earns exceptionally high returns on capital, but even excluding this datapoint, the correlation coefficient is 65% (chart below).

The curve is relatively flat, with the exception of two outliers, implying that it is hardest to improve general upstream returns using technology. This may be because upstream portfolios are vast, spanning many different asset-types and geographies.

Downstream patent filings predict downstream returns, with an 80% correlation coefficient (chart below). However, our sample size is smaller, as we were unable to dis-aggregate downstream ROACE for all the Majors.

The curve is very steep, indicating that downstream technology leaders can surpass c20% returns on capital, versus c10% using industry-standard technologies.

Chemical patent filings predict chemical returns, with a 57% correlation coefficient (chart below). Again, our sample size is smaller, as we could only estimate chemicals ROACEs for some of the Majors.

The curve is also steep, with technology leaders earning c10-20% returns, versus low single digit returns for less differentiated players.

Overall, the results should matter for investors in the energy sector, for capital allocation within corporates, and for weighing up the benefits of in-house R&D. We would be delighted to discuss the underlying data with you in more detail.

Johan Sverdrup: Don’t Decline?

Equinor is deploying three world-class technologies to mitigate Johan Sverdrup’s decline rates, based on reviewing c115 of the company’s patents and dozens of technical papers. Our new 15-page note outlines how its efforts may unlock an incremental $3-5bn of value from the field, as production surprises to the upside.


Pages 2-3 provide the context of the Johan Sverdrup field, its implied decline rates and how their variability will determine the field’s ultimate value.

Page 4 re-caps the concept of decline rates and how they should be measured.

Pages 5-7 recount the history of Digital Twin technologies, the cutting edge of their application offshore Norway and evidence for Equinor’s edge, as it deploys the technology at Sverdrup.

Pages 8-11 illustrate the upside in Permanent Reservoir Monitoring, comparing Equinor’s plans versus prior achievements deploying the technology off Norway.

Page 12-14 show the cutting-edge technology that excites us most: combining two areas where Equinor has established a leading edge. This opportunity can improve well-level production rates by c1.5x.

Page 15 ends by touching upon other technologies that will be applied at Sverdrup, quantifying Equinor’s offshore patent filings versus other listed Majors’.

De-Carbonising Carbon?

Decarbonisation is often taken to mean the end of fossil fuels. But it is more feasible simply to de-carbonise them, with next-generation combustion technologies.

This 19-page note presents our top two opportunities: ‘Oxy-Combustion’ using the Allam Cycle and Chemical Looping Combustion. Both can provided competitive energy with zero carbon coal & gas.

Leading Oil Majors are supporting these solutions, to create value while advancing the energy transition.


Carbon capture remains an “orphan technology”, absorbing just c0.1% of global CO2. The costs and challenges of current technologies are profiled on pp2-4.

Energy penalties are particularly problematic. Paradoxically, the more CCS in our models, the longer it takes to de-carbonise the energy system (see pp5-6).

Next generation combustion-technologies are therefore necessary…

Allam Cycle Oxy-Combustion burns CO2 in an inert atmosphere of CO2 and oxygen. We evaluate a demonstration plant and model strong economics (see pp12-15).

Chemical Looping Combustion burns fossil fuels in a fluidized bed of metal oxide. We profile the technology’s development to-date, net efficiency and levellised costs, which are passable (pp8-11).

Oil Majors are driving the energy transition. We count ninety patents from leading companies to process CO2, including 30 to de-carbonise power. The best advances are profiled from TOTAL, Occidental, Aramco and ExxonMobil. (See pp16-19).

Lost in the Forest?

In 2019, Shell pledged $300M of new investment into forestry. TOTAL, BP and Eni are also pursuing similar schemes. But can they move the needle for CO2? In order to answer this question, we have tabulated our ‘top five’ facts about forestry. We think Oil Majors may drive the energy transition most effectively via developing better energy technologies in their portfolios.


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Oil Companies Drive the Energy Transition?

There is only one way to decarbonise the energy system: leading companies must find economic opportunities in better technologies. No other route can source sufficient capital to re-shape such a vast industry that spends c$2trn per annum. We outline seven game-changing opportunities. Leading energy Majors are already pursuing them in their portfolios, patents and venturing. Others must follow suit.


Pages 2-3 show that today’s technologies are not sufficient to decarbonise the global energy system, which will surpass 100,000TWH pa by 2050. Better technologies are needed.

Pages 4-6 show how Oil Majors are starting to accelerate the transition, by developing these game-changing technologies. The work draws on analysis of 3,000 patents, 200 venture investments and other portfolio tilts.

Pages 7-13 profile seven game-changing themes, which can deliver both the energy transition and vast economic opportunities in the evolving energy system. These prospects cover electric mobility, gas, digital, plastics, wind, solar and CCS. In each case, we find leading Oil companies among the front-runners.

Patent Partners: Pairing Up?

This note contains our ‘Top Five’ conclusions about the Oil Majors’ research partnerships, drawing off our database of 3,500 oil company patents. Different companies have importantly different approaches. We can quantify this, by looking at the number of patents co-filed with partners (chart above).

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Who else wants more shale?

The Majors’ deepening interest in shale was illustrated by Chevron’s $50bn acquisition of Anadarko. Consolidating in the Permian fits our ‘Winner Takes All‘ thesis.

But who else wants more shale in their portfolio? This is not to speculate on M&A, but simply looking at the companies’ research activity last year…

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If you would like to read our latest deep-dive note on shale-technology it is linked here. The full database, covering all 300 technical papers is available here.