Last year Petrobras supported an oil industry request for the government to lower taxes, but it has reversed its position in 2003. "We don't agree with the [request] of the other companies to the government to lower the tax system on oil exploration and production in Brazil because we are exploring [and] producing in these competitive terms," Estrella said. "We are producing oil very profitability, have invested large amounts of money in geological and seismic interpretation and are presenting high success rates in our exploratory wells," he said. "If we are dealing normally with this level of taxes, and the competitors are not, I don't see any reason to join them (to get the government to cut taxes)," Estrella said.
Petrobras CFO Jose Gabrielli said the company has cost-efficient infrastructure and logistics in Brazil, which puts it in a better position to face local tax and participation rates. Petrobras plans to invest US$2.1bn in exploration in Brazil between 2003 and 2007, Estrella told analysts during a conference call to discuss exploration plans. By year-end, Petrobras will have 125 exploration blocks and 33 evaluation plans areas totaling 124,000 sq km, representing nearly 73% of the total exploration concession areas in Brazil, he said.
In August 2003, Petrobras relinquished 22 of the last 24 Round Zero blocks, but retained 33 discoveries totaling 13,000 sq km, which are being evaluated to define their commerciality, Estrella said. By September 15, the company must return 50% of acreage on its eight Round 2 blocks. Also in August, Petrobras picked up 88 new blocks during Round 5, or around 21,100 sq km. These include 10 blocks in mature onshore basins (Potiguar, Reconcavo, Espirito Santo) to preserve production areas and maintain production levels, and 49 offshore shallow water blocks in the traditional Santos and Campos basins, where it wants to pursue recent light oil and natural gas discoveries, he said In frontier areas, Petrobras bought 17 shallow water concessions Foz do Amazonas and Barreirinhas basins in the Brazilian equatorial region, where Petrobras expects high rewards in terms of light crude despite the high exploratory risks, Estrella said. Similarly, five frontier blocks purchased in the Jequitinhonha basin are also expected to reveal "high rewards" in terms of a new light crude province, he said.
Between August 1998 and August 2003 Petrobras spent nearly US$3.1bn, (US$620mn a year) and drilled 386 exploration wells, 140 in Campos and Santos, and shot 330,000 sq km of 2D seismic and 60,000 sq km of 3D seismic. The average success rate over the last five years has been 21%, but this has risen to 33% in the last 12 months as the company has "fine-tuned" its geological models, Estrella said. This has lead to a number of significant discoveries: some 1.96 billion barrels of crude oil and 14.8 trillion cubic feet of natural gas, mainly in the Campos, Espirito Santo, Sergipe Alagoas and Santos basins, he said. These discoveries are shifting Petrobras' reserves profile from heavy crude to light oil and natural gas, which is improving the prospect for refining in Brazil, he said. In general terms, the company is in a position to produce from heavy oil reserves with more than 250 million barrels, Estrella said, adding that this varies depending on the region.
On the production side, Estrella said he expects talks with companies bidding for contracts to build the P-51 and P-52 semi-submersible platforms to end with "very reasonable" costs. Petrobras is negotiating directly with the companies after the initial bids came in some US$500mn over the original budget of US$11bn. The platforms will "definitely" be built in Brazil, he said, adding that they should still be online in 2H06.
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