Petrobras Hopeful About New Amazon Oil Finds

Brazil's federal energy company Petrobras (NYSE: PBR) expects to find oil and natural gas in coming days in the onshore Amazonian exploratory block BT-SOL1 in the Solimões basin, Solimões basin exploration assets manager Calso Murakami told BNamericas.

The discovery would confirm the region''s potential as an important oil and gas district, Murakami said.

"We have drilled 1,600 meters and in another 80-90m we will be crossing the stratum where we expect reserves to be," he said after returning from a helicopter reconnaissance flight of the area.

The BT-SOL1 was awarded in 2002 to Petrobras, which started drilling in recent weeks after carrying out seismic and geological studies.

The block is close to the existing Urucu producing region, where the company operates some 60 wells in three fields producing a total 60,000 barrels of light crude a day and 10 million cubic meters of natural gas from 2,500m wells.

"The geological conditions in BT-SOL1 should be similar to the Urucu fields," said Murakami.

Evidence of oil in the Amazon was first found in 1917 but it was not until 1986 that Petrobras found the Urucu fields, which started production in 1988.

Petrobras has earmarked some US$30mn investment in the BT-SOL1 block through the end of the year. The company is already planning to drill two more exploratory wells in the block.

Deep in the western Amazon jungle, Petrobras not only has to bring in all 1,860 personnel to the BT-SOL1 and Urucu blocks by plane from Manaus some 600km away but also has to maintain expensive environmental protection and social programs for the local population.

Lifting cost in the region are some US$9/b, more than twice the company''s US$4/b average.

In addition the lack of nearby markets forces the company to re-inject 80% of the natural gas back into the fields. "There is no market near so we have to put the gas back in the ground," said Urucu production manager, Ronaldo Coelho.

However, despite the drawbacks Murakami says it is worthwhile as the company is able to cover all its costs, including social and environmental projects, with revenue from oil sales and 1,440 tonnes a day of liquefied petroleum gas (LPG) from three natural gas processing plants.

Petrobras has invested an estimated US$820mn in the development of the Solimões basin to date.


The strategic importance of the area extends beyond short-term oil and gas production. Not only does it allow Petrobras to distribute LPG to the northern region of the country but also gives the company a foothold in an area which will one day supply enough natural gas to replace imported diesel and fuel oil at power plants in large urban areas such as Manaus.

Work has already started to build the 650km gas pipeline that will link Urucu to Manaus, replacing the current transport by barge along the giant Solimões and Negro rivers. Not only will this make the development of the BT-SOL1 block economically feasible but could also lead to the development of three other fields in the region, São Mateus, Juruá and Azulão.

"We have postponed the declaration of São Mateus'' commercial feasibility until 2006 to see how the market develops," said Murakami.

The company is also aware that the new pipeline, scheduled to start operations in 2007, will attract interest from other companies, even though there is no clear legislation for gas transport on pipelines.

Hydrocarbons regulator ANP plans to offer 32 blocks near the BT-SOL1 and Urucu fields In October's seventh hydrocarbons licensing round.

Petrobras is already preparing to make offers for the blocks but does not yet know if there will be interest from other companies.

"I believe Petrobras will remain alone in the region, but we fear the competition," said Murakami, declining to give details on company strategy for the tender.

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