, RIO DE JANEIRO Dec 28, 2006 (Dow Jones Newswires)
Royal Dutch Shell PLC (RDSB.LN) Thursday declared one of its Brazilian offshore oil fields to be commercially viable.
In a statement, Shell and its partners defined two areas within the BS-4 block for development. The field is located at a water depth of 1,550 meters in the Santos Basin, 185 kilometers off the coast of the city Rio de Janeiro.
Shell is the lead operator of the block with a 40% stake, while Brazil's state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, holds 40%, and Chevron Corp. (CVX) holds the remaining 20%.
Shell didn't say when it expects the new field to start producing, nor did it give details of how much oil could be produced from BS-4, which has estimated reserves of about 300 million barrels of very heavy crude.
While heavier crude is more difficult to extract and has a lower market price, recent high oil prices have made the production of Brazilian heavy offshore oil more promising.
Shell had waited until the last moment before declaring the BS-4 commercially viable. The company had until year-end to make the declaration, which includes a promise to develop the field, or else it would have had to hand the block back to Brazil's National Petroleum Agency, or ANP.
"We know that we have to continue to work on the evaluation of the discoveries and on the definition of the development concept," said John Haney, vice president of exploration and production at Shell's Brazilian unit, in the statement.
Shell will only be able to book oil from the BS-4 as new reserves once it has presented a development program for it, said Monica Araujo, oil analyst at the Ativa brokerage in Rio de Janeiro.
"But the declaration of commercial viability is positive for all companies involved," Araujo said. "It shows that at some point soon, they will add new reserves."
Araujo also said that while oil discoveries by foreign firms have not been as large as in some other countries, such as Nigeria, the heavy exploration programs are starting to pay off. Brazil opened its oil sector to foreign firms in the late 1990s.
"The success rate is increasing. This gives incentives for more seismic studies," Araujo said. "Foreign companies' investments in Brazil are starting to render results."
Shell also has a 50% operating stake in Brazil's BC-10 block, which was declared commercial in December 2005. That block is located in water depths ranging from 1,500 to 2,000 meters, about 120 kilometers southeast of the city of Vitoria in Espirito Santo state, just north of Rio de Janeiro state.
Shell has previously said that field could produce about 100,000 barrels of oil a day, and has an estimated 400 million barrels of oil reserves. Production at the BC-10 block could start in late 2007 or early 2008, Shell said in March.
Until recently, Shell was the only foreign firm producing oil in Brazil. It currently pumps some 30,000 b/d from the Bijupira and Salema oil fields in the Campos Basin.
Spanish-Argentine oil firm Repsol YPF (REP) in April became the second foreign firm to produce oil in the country due to a 10% participation in the Albacora Leste field, which now produces close to 180,000 b/d. Petrobras holds the other 90% in that field.
Foreign oil companies are expected to boost their oil production in Brazil in coming years.
Foreign firms should add more than 300,000 b/d in new production to Brazil's oil output by 2010, a Dow Jones Newswires study of recent production announcements by companies found. The amount does not yet include a possible production from the BS-4 block.
Copyright (c) 2006 Dow Jones & Company, Inc.
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