IBP: Oil Companies In Brazil Running Out Of Exploration Areas

RIO DE JANEIRO - Oil companies operating in Brazil are running out of areas to explore because the government has delayed new concession auctions, which could cause companies to pull up stakes and scuttle the country's goal of becoming one of the world's top crude producers, a key industry trade group warned.

"If there isn't any offer [of exploration areas] in 2013 or 2014, in 2015 [oil companies] will run out of areas to explore," Carlos Henrique Abreu Mendes, environment manager for the Brazilian Petroleum Institute, or IBP, told Dow Jones Newswires in an interview on Wednesday. "By 2016, there won't be any type of exploration activity in the country."

Companies that provide exploration services, such as seismic data-gathering and oil-well engineering, could head for other regions with more work at a critical time in Brazil's development of huge offshore oil fields. The oil sits in ultradeep-water reserves, buried under a layer of salt more than four miles below the seabed, which could hold as much as 50 billion barrels of oil equivalent.

"There are an enormous number of companies involved in this process that could become disinterested in staying in the country, causing a halt in a market that is in an intensive exploratory phase," Mendes said.

The oil could make Brazil one of the world's top four crude producers and a top 10 exporter, with state-run energy giant Petroleo Brasileiro (Petrobras) estimating output could reach more than 6 million barrels per day by 2020. Oil production is a key pillar of the government's strategy to boost activity Latin America's largest economy, increase education and lift millions of Brazilians out of poverty.

Brazil last offered oil and natural gas exploration concessions in 2008. An 11th auction is largely ready to go, but has been delayed for more than a year because lawmakers are squabbling over how to divvy up royalties from the oil bounty.

The importance of the oil sector for Brazil's future likely means cooler heads will probably prevail, the IBP's Mendes said. "The first half of 2013 looks to be a good indicator for when the 11th round should take place," he said.

Mendes, who was Rio de Janeiro state's environment minister in the late 1990s, also said Brazil could be selected as a site for key oil-containment equipment under development for use in extreme environments, similar to the improvised inverted-funnel device used with success during the Macondo accident in the U.S. Gulf of Mexico. Petrobras is one of seven oil companies involved in designing the device, Mendes said.

A spokeswoman for Petrobras wasn't able to comment immediately.

Given Petrobras's involvement and Brazil's growing importance as an oil producer, the country is a "strong candidate to have this equipment," Mendes said. The containment vessel would be stored and maintained in Brazil, but could also be shipped to other regions in a matter of days in an emergency, he added.

Four of the devices are under construction at a price tag of between $30 million to $50 million each, Mendes said. "We expect [the devices to be ready] next year," Mendes said. "Hopefully in the first half of the year, the first training and testing can start."


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