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Petrobras confident over deep water well

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Financial Times: Petrobras confident over deep water well

By Ed Crooks
Published: April 30 2008 03:00 | Last updated: April 30 2008 03:00

In more than 2,000 metres of water off the coast of Brazil, Petrobras, the Brazilian national oil company, is drilling what could become one of most important oil wells of recent years.

Sergio Gabrielli, chief executive of Petrobras, told the Financial Times that results from a well now being drilled in the offshore Carioca field, the subject of fevered excitement, should provide some answers about its true potential in about three months’ time.

While Mr Gabrielli warned that exploration was still at an early stage, he said the potential reserves of the Brazilian deep water could be “huge”, and he did not think Petrobras would face “insurmountable challenges” in producing the oil it found.

This month, the head of Brazil’s petroleum regulator provoked uproar when he suggested that Carioca could contain 33bn barrels. That would make it one of the biggest finds ever, holding enough oil to meet global demand for more than a year.

His remarks, later clarified as not giving an official estimate, caused jumps in the share prices of Petrobras and its partners in the Brazilian deep water project such as BG Group, of the UK, and Repsol, of Spain.

Last year, Petrobras drilled a first well on licence block BM-S-9, which covers Carioca, and a second well is under way. Mr Gabrielli said the drilling would take a month or two, and analysing the results another month or two after that.

“We cannot have a final assessment of the oil in Carioca, because we are still drilling,” he said. “Given the expectations from geological and seismic information, we could find a very large volume, but we do not know.”

The figure of 33bn barrels of oil – more than the proved reserves of the whole of the US – came from World Oil magazine, he added.

“What the regulator was saying he got from a publication in the US,” he said. “The regulator does not have the information. We are the operator; we are the only ones who have the information, and we will not know more until three months from now.”

He added that the 33bn estimate did not apply to just the BM-S-9 block, but to a geological structure that extended over several blocks, and to areas for which the Brazilian government had not yet awarded licences.

Petrobras is working on different blocks in the area with different partners, including ExxonMobil and Hess, of the US, BG, Royal Dutch Shell, Repsol and Galp, of Portugal.

Arthur Berman, the Houston petroleum consultant who wrote the article on Carioca for World Oil, acknowledged that the 33bn figure was “a very speculative number”, although a “credible guess”.

He told the Financial Times that he had calculated it by using a geological structure map to assess the size of the potentially oil-bearing area, which he believes is about five times the size of the structure at the Tupi field, another Petrobras deep-water discovery north-east of Carioca estimated by Petrobras to hold 5bn-8bn barrels of recoverable oil.

So the 33bn for Carioca comes from taking the mid-point of the Tupi range and multiplying by five.

Mr Berman said the well being drilled on BM-S-9 would be an important source of additional information, but even after the results were in, estimates of of the size of Carioca would remain “highly speculative”.

Finding resources in the area around Carioca and Tupi is difficult because they are pre-salt, or sub-salt. The oil-bearing rocks are beneath a thick layer of salt, which creates problems for seismic surveys.

The first well drilled in the region cost $240m, including all the preparatory work, although the most recent cost only $60m, Mr Gabrielli said.

Oil extraction from sub-salt reservoirs is difficult, too; salt tends to move, and there is a risk of it shearing or crushing the production well casing.

Another problem is that the oil-bearing rocks are carbonates such as limestone, which can be more variable than the easier sandstone reservoirs. Oil flows can be very variable, and in the worst cases can drop off very quickly.

Mr Gabrielli believes the problems are soluble. “Most of the technical problems we would face have solutions already developed, but we don’t have experience with the different bits all working together,” he said. “But I don’t think we face any insurmountable challenges.”

Petrobras plans to begin testing on the Tupi field by the end of next year. Mr Gabrielli said Petrobras was “very positive that we can declare commerciality”, draw up a development plan and get first oil by the end of 2010.

Copyright The Financial Times Limited 2008

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