Shell Exec: Brazil Pre-Salt Layer Oil Find Encouraging

VITORIA Apr 19, 2007 (Dow Jones News)

Recent oil finds in the ultra-deep pre-salt layer of Brazil's Santos Basin are encouraging, John Haney, vice president of exploration and production at the Brazilian unit of Royal Dutch Shell PLC (RDSB), said this week.

"Everybody is pretty interested in it at this point. The success they've made at tests is encouraging," Haney told Dow Jones Newswires in an interview during the Vitoria Oil and Gas conference, which ends Wednesday.

"The opportunity for lighter oil in large volumes is there, and that's what people are looking for," he said.

Brazil's state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, last October had said that production tests showed the existence of a "significant volume" of 30 degrees API crude in an exploration well in the BM-S-11 exploration block.

The find is considered a new frontier. It lies below a water depth of 2,140 meters, then a 2,000-meter-thick salt layer that itself is under 3,000 to 4,000 meters of sand and rocks. That means the oil find is at a distance of more than 7,000 meters from the Ocean's surface.

Petrobras has a 65% stake in the Santos exploration block that contains the discovery and was dubbed the Tupi field. U.K. energy company BG Group PLC (BRG) holds another 25%, and Petroleos de Portugal, or Petrogal, holds the remaining 10%.

Shell has a stake in the BM-S-8 block, which lies close to the BM-S-11 block where Petrobras made the discovery.

Later this year, Shell will participate in the drilling of an exploration well in the BM-S-8 block, Haney said, with Petrobras as a partner.

"Looking at the areas that we have, and the prospects that we have, it's encouraging. But it's also high-risk," Haney said, adding that the probability of an exploration success in any one well in the pre-salt layer is very low.

BG in February was highly upbeat about the Santos find, in which it has a participation. The field could have estimated hydrocarbons in place of between 1.7 billion and 10 billion barrels of oil equivalent, or BOE, company officials estimated.

But Petrobras is far more cautious. The company in March said it was too early to evaluate what volume of oil is contained in the pre-salt layer, a view repeated in Vitoria by Petrobras executives.

"We're upbeat about it. But anything you say today about exploration in the pre-salt layer is preliminary," Paulo Mendonca, executive manager for exploration at Petrobras, said Wednesday.

Petrobras two weeks ago has started to drill a well in the BM-S-9 block, which is adjacent to the Santos pre-salt block where oil was found, Mendonca said. Petrobras is operator in that block with a 45% stake, while BG holds another 30%, and Spanish-Argentine energy firm Repsol-YPF (REP) holds another 25%.

Out of nine wells currently being explored by Petrobras off Brazil's coast, the well is the only one in the pre-salt layer. This year, the company plans to drill more than 40 offshore exploration wells in Brazil.

Petrobras last year hit oil in about half of the wells it explored, and hopes to increase the success rate, Mendonca added.

The Brazilian company in March had announced another oil find in the ultra-deep pre-salt layer, but this time in the Campos Basin off the coast of Espirito Santo State.

But for that area as well, the company refrains from making any statements about how much oil could lie below the salt layer.

"We're working on those finds. But we're still in a too preliminary phase to be able to say anything about volumes," Marcio Bezerra, general manager for Espirito Santo State exploration unit at Petrobras, told Dow Jones on Monday.

Pumping oil from the extreme depth of the Santos and Espirito Santos Basins is very expensive and challenging because of complicated geographical conditions.

"In some areas it is expensive as the oil lies very deep. But it's also expensive as it's a new frontier," Bezerra said. "As everything new, there's the element of the unknown. You need more information, and often things turn out not to be what you had thought."

Brazilian media have speculated that a second oil province the size of the Campos Basin could lie below the salt layer. The Campos Basin accounts for 80% of Brazil's oil output, but production comes from layers above the salt. Brazil currently produces a little more than 1.8 million barrels per day.

Bezerra and Mendonca said it's too early to confirm such speculation, and also said he couldn't give an estimate as to when actual oil production from the pre-salt layer could start, if at all.

Copyright (c) 2007 Dow Jones & Company, Inc.

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