Petrobras to Intensify Investment, Exploration at Campos Basin

RIO DE JANEIRO (Dow Jones Newswires), Jan. 23, 2009

The global economic crisis will likely force Brazilian state-run energy giant Petrobras (PBR) to adjust some of its 2009 investment plans, but the company should still be able to match 2008 capital expenditure levels.

"I think investments will be on the same level as in 2008," said Nelson Rodrigues de Matos, an analyst at Rio de Janeiro investment bank BB Investimentos.

But maintaining the same level means Petrobras has probably jettisoned plans to increase outlays in some areas, according to analysts. In 2008, Petrobras' investment budget settled at about 50 billion Brazilian reals ($21.3 billion).

Later Friday, Petrobras will release its much-anticipated 2009-2013 strategic plan. Economic uncertainties and tight credit markets caused the company to twice delay release of the five-year plan, which is typically divulged by October each year.

The plan is expected to include the first concrete program for Petrobras' promising subsalt oil deposits. A series of subsalt discoveries in the Santos Basin last year invigorated Brazil and the company, which is seen as a key driver of local economic growth.

"Certainly, this plan will now contain investments in the subsalt region," said Matos. It will also likely include, for the first time, investments in two new refineries, in the Northeast states of Maranhao and Ceara. These weren't part of the previous $112-billion 2008-2012 plan.

In March, Petrobras also will start a long-term well test at the Tupi field in the Santos Basin. A pilot production program will then start in late 2010, according to Petrobras.

Tupi was the discovery that first started the subsalt hubbub in November 2007, when Petrobras estimated recoverable reserves at between 5 billion and 8 billion barrels of oil equivalent, or BOE. Last year, Petrobras said the Iara discovery in a separate area of the same block could hold between 3 billion and 4 billion BOE.

While initial development plans for Tupi and other Santos fields should become clearer, analysts said the company's investment plans will likely continue to focus on exploration and production in the subsalt area.

BB Investimentos' Matos said Petrobras will likely turn its focus toward the key Campos Basin next year. When the basin was first explored, the subsalt layer wasn't the drilling target. With the possibly massive discoveries in the Santos Basin in mind, Petrobras executives are poised to revisit the Campos Basin's fields.

"Petrobras is going to intensify exploration of this area," Matos said.

Nearly 85% of Brazil's crude-oil output comes from the Campos Basin, off the coasts of Rio de Janeiro and Espirito Santo states. That means the key infrastructure, including platforms and logistical support, is already in place. Petrobras has already added 128 million BOE to its proven reserves from subsalt discoveries in the basin.

More importantly, Petrobras doesn't face nearly the technological challenges to develop subsalt deposits in the Campos Basin. The Campos Basin salt layer is about 200 meters thick versus 2,000 meters thick in the Santos Basin.

"Everything is cheaper in the Campos Basin. It's easier. Petrobras will open a new frontier for exploration in the Campos subsalt area," Matos said.

The Campos Basin could also add quicker production - and cash flow - to Petrobras that could be used to fund the more expensive Santos Basin development. In September, the basin yielded the first subsalt oil production when Petrobras started pumping from a well at the Jubarte field.

Subsalt oil production could help Petrobras finally top its domestic crude-oil production target of 2 million barrels a day. In 2008, Petrobras pumped an average of 1.85 million barrels of crude a day, below the company's revised target of 1.9 million barrels a day.

Lower costs and faster oil output also could ease the company's financing burden. Petrobras faces the daunting task of funding its exploration and expansion plans amid the worst financial crisis in 70 years.

"They're not going to be able to maintain the same level of investment with their own cash. Petrobras is going to have to go to capital markets this year," Matos said.

Morgan Stanley analysts pegged 2009 financing needs at $9 billion, while Credit Suisse forecast $8.5 billion.

Some of the financing will be obtained in Brazil, where the company has already tapped state banks Caixa Economica Federal and Banco do Brasil. In addition, Finance Minister Guido Mantega specifically mentioned Petrobras when announcing a BRL100 billion expansion in lending by the government's National Development Bank, or BNDES.

Mantega said Petrobras investments were "more important than any other company."

Copyright (c) 2008 Dow Jones & Company, Inc.


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