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Brazil's QGEP Boosts Investment Plans on Find, New Blocks

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RIO DE JANEIRO - Brazilian oil and natural gas company QGEP Participacoes will increase investments in 2013 after making a significant offshore oil discovery and buying stakes in several new blocks, the company's chief financial officer said Thursday.

Speaking during a conference call with analysts, CFO Paula Costa said QGEP was raising its investment plans for next year to $230 million, up from previous estimates for $165 million. In addition, the executive said investments for 2014 were set at $170 million.

"We're highly capitalized for our exploration plans," Ms. Costa said, adding that high liquidity in capital markets has the company evaluating potential financing sources, despite the lack of a need for funding.

The heftier spending comes after QGEP, the oil and natural gas exploration arm of local construction firm Queiroz Galvao, and its partners in a Santos Basin block made an oil discovery in the Carcara prospect. The Santos Basin is home to a cluster of ultra-deepwater oil finds in the subsalt, a geologic region containing oil trapped miles below the seabed under sand, rocks and a layer of salt.

Drilling on Carcara was completed during the current quarter, confirming the presence of an oil column that was nearly 500 meters long--one of the largest yet discovered in a basin that is home to some of the largest oil discoveries made in the past three decades.

While potential volume estimates will have to wait until after well tests are completed over the next few months, QGEP Chief Executive Lincoln Guardado said the company and its partners believe that the Carcara find holds less oil than the 5 billion barrel Lula field that kicked off the subsalt craze. "We're also very curious about the potential volume at Carcara," Mr. Guardado said.

QGEP said the consortium operating the block, which includes state-run energy giant Petroleo Brasileiro, or Petrobras, was revising development plans in light of the new discovery, Mr. Guardado said. The group was now awaiting word from Brazil's National Petroleum Agency, or ANP, about a new timeline for developing the block.

"Certainly, we'll have additional drilling efforts in this block in 2013 and 2014," Mr. Guardado said.

QGEP also plans to drill a well next year in the subsalt Guanabara Profundo prospect, part of the company's purchase of a 30% stake in three offshore Campos Basin blocks this week from Petrobras, Mr. Guardado added. QGEP will cover about $55 million in exploration costs in 2013 as part of the acquisition.

"The outlook is for drilling to start by the end of the first half of 2013," Mr. Guardado said. A drilling rig contracted by Petrobras will tap the well, which will take about six months to drill, he added.

QGEP also expects the ANP to approve its development plan for the BS-4 block, where the company operates the Atlanta discovery. A horizontal well at the field will be drilled in 2013, with first production from a pilot production test expected in 2014, Mr. Guardado said.

Late Wednesday, QGEP said it recorded a net profit of 61.9 million Brazilian reais ($30.5 million) in the third quarter of 2012, rebounding from a net loss of BRL3.5 million in the same period a year ago. Net profit jumped on higher natural gas production from the company's Manati field and strong demand for the fuel in Brazil, QGEP said.

Copyright (c) 2012 Dow Jones & Company, Inc.

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