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Petrobras recent discovery offers more proof of Pre-Salt potential

RIO, Feb 24 2012

A recent oil discovery by Brazil's Petrobras (NYSE: PBR ) has offered more proof of the massive potential of the offshore Santos Basin, one of a number of hydrocarbon-rich formations that could help the company lead Brazil into the league of energy superpowers in the coming years.

Petrobras announced the find on February 8, northwest of the original discovery well at the Franco oil field in the Santos Basin.

The original Franco well was drilled by the Brazilian National Agency of Petroleum, Natural Gas and Biofuels ( ANP ) in May 2010, and was estimated to hold 4.5 billion barrels of crude oil. Petrobras has subsequently stated that reserves at Franco could be as high as 6 billion barrels.

This latest discovery for Petrobras, its first in the Franco prospect since it was acquired from the ANP under the Transfer of Rights Agreement signed between the two, confirms the extension of the already rich Franco formation. Petrobras has not yet upped its estimates of the reserves for the Franco formation or indicated how prolific its new find may be, as a formation test still needs to be conducted to assess the well's productivity.

The company did reveal, however, that good quality oil samples of 28 degrees on the American Petroleum Institute (API) scale have been discovered in excellent rock reservoirs, with thicknesses similar to what was found at the original Franco well.

Ambitious development plans

Petrobras, which produced 2.72 million barrels per day in December, is looking to produce 6.4 million barrels per day by 2020. The company believes the area it acquired from the ANP under the Transfer of Rights Agreement could contribute as much as 845,000 barrels  per day by this time.

The Franco field and recently discovered extension lie under a thick layer of salt though, and drilling these “pre-salt” or “subsalt” formations is technically challenging and very expensive. But the sheer scale and number of discoveries made by Petrobras in recent years, along with crude oil prices that are holding at $100 per barrel, now mean many of these projects have become economically viable for the company to develop.

Development plans unveiled by Petrobras last year for 2011 to 2015 certainly suggest as much, with the company set to spend $224.7 billion by 2015. $127.5 billion will be spent on exploration and production (E&P), and of this, 45 percent will be devoted to the pre-salt plays. 50 percent of the budget for development, meanwhile, will also be allocated to the pre-salt areas, and by 2020, Petrobras is hoping that this heavy investment in its range of pre-salt prospects will have them contributing over 40 percent of the company's oil output.

Pre-salt reserves

Along with the Franco field, the other prospects that are expected to fuel this pre-salt production growth for Petrobras include the Tupi (estimated reserves of 8 billion barrels), Libra (4.5 billion barrels), Iara (4 billion barrels), and Iracema (1.8 billion barrels) fields, all of which lie in the BM-S-11 block in the Santos Basin.

Petrobras is the operator at the block and controls a 65 percent stake, while BG Group  (LSE: BG ) and Portugal's Galp Energia (ELI: GALP ) hold the remainig interest, with shares of 25 percent and 10 percent respectively.

Another major pre-salt field outside of the prolific BM-S-11 block is the Guara  oil field, in BM-S-9. Petrobras is also the operator in this block, and holds a 45 percent interest. Partner BG Group holds 30 percent, and a joint venture between Repsol  (OTC Pink: REPYY ) and Sinopec (NYSE: SHI ) controls the remaining 25 percent.

Securities Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.



Story by Robert Sullivan from Resource Investing

Resource Investing News | Tue, Feb 21, 2012


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