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BG’s huge find propels Brazilian oil to centre stage

Times Online

September 10, 2009

A vast new oilfield off the coast of Brazil could contain up to two billion barrels of crude, providing fresh evidence that a spate of discoveries in the region is opening up a new frontier for the global oil industry.

BG, the international arm of the old British Gas group, said that the results from a test well on its Guara field, lying 7 km beneath the surface of the Atlantic ocean, showed that it holds between 1.1 and two billion barrels of recoverable oil.

The company said the find would dwarf the “giant” discovery announced by BP last week in the Gulf of Mexico, believed to contain about 500 million barrels of recoverable reserves.

BG, the UK’s third-biggest oil and gas group after Shell and BP, owns a 30 per cent interest in the Guara field, which was discovered in June 2008. Its partners, Petrobras, Brazil’s national oil company, and Repsol of Spain, own 45 and 25 per cent respectively.

The Santos Basin, where Guara and seven other big discoveries have been made since 2006, covers 352,000sq km — slightly larger than the land mass of Italy — and lies about 300 km off the south-east coast of São Paolo.

But while the fields are among the largest found anywhere in the world since the 1960s, the oil will be very costly to extract. Not only is it located in a remote corner of the Atlantic, but it is also locked in reservoirs beneath 2,000m of water and a further 5,000m of rock, sand and salt — requiring cutting-edge robots and other technology to recover.

However, BG claimed Guara would start producing commercial quantities of oil from 2012. It said the field was capable, initially, of producing up to 50,000 barrels per day, and that the oil would be piped into giant floating tankers before being shipped ashore.

Production from Guara and other fields in the Santos Basin, such as Tupi, Carioca, Iara and Parati, is poised to catapult Brazil into the top tier of global oil producers.

Brazilian officials have estimated that at least 50 billion barrels are held in the so-called sub-salt fields. If developed, they would make the country the world’s fourth-largest producer after Saudi Arabia, Russia and the US.

Frank Chapman, BG’s chief executive, said: “The well test results on Guara were excellent and underscore again the outstanding potential in BG Group’s extensive position in the world-class Santos Basin. It is clear that the Santos Basin pre-salt will make a very material contribution to the production and cashflow of BG Group for many years to come.”

Andrew Whittock, oil analyst at Oriel Securities, said BG’s involvement in Brazil had been a “huge success”. He added: “This effectively doubles their initial reserve estimate for Guara. The real surprise was the flow rate, which was much higher than anyone had expected.”

The Brazilian Government has moved to change its laws on oil production to ensure that the windfall from the Santos Basin benefits the whole country. Some of the proceeds will go to a fund designed to channel money into poverty reduction, science and technology, the environment and improving education.

BP, Europe’s second-biggest oil group, announced last week that it had made a “giant” oil discovery at its Tiber Prospect in the deep-water Gulf of Mexico. The company described the well as “one of the deepest … ever drilled by the oil and gas industry”.

Oil up as Opec meets

• The price of a barrel of Brent crude oil edged up $1.18 to $70.60 last night as representatives from the 12 Opec member states, which together pump about a third of the world’s oil, convened for their meeting in Vienna.

• They were virtually certain to leave production quotas unchanged at about 25 million barrels per day after Saudi Arabia, the group’s top exporter and de facto leader, as well as others including Kuwait and Algeria, signalled strongly that they saw no need to trim supply.

• Before the meeting, held at night in order to observe the ramadan fast, Ali al-Naimi, the Saudi Arabian Oil Minister, said: “With the price between $68 and $73, what else do you want? The price everybody likes — consumers and producers.”

• The cartel’s current production target is just under 25 million barrels per day — about 4 million barrels lower than a year ago, following a string of steep production cuts imposed last autumn to support the market as the global crude price collapsed from highs of $147 per barrel.

• Actual production by the Opec cartel is now believed to be 1 million barrels higher, at about 26 million barrels per day, as some member states are producing more than their quota.

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