Finds Fall 15% in 2004 as Petrobras Consolidates

The rhythm of oil discoveries in Brazil declined 15% in 2004 from the previous year as federal energy company Petrobras (NYSE: PBR) concentrated efforts on expanding production in known regions, according to analysts.

The number of oil finds registered by the hydrocarbons regulator ANP fell to 69 in 2004 from around 80 in 2003. Thirty-four finds were registered in 2002, 88 in 2001, 47 in 2000, 49 in 1999 and eight in 1998.

Petrobras was responsible for most of the finds, and despite the country's oil sector having been open to private participation for the last six years, the company is still by far the dominant upstream force. The number of finds, however, is not forecast to increase in 2005 as Petrobras is expected to continue to focus on sedimentary basins known to contain oil, giving little-known basins secondary priority.

"In 2004, Petrobras focused on the delimitation of the 2003 finds and on the conclusion of the appraisal plans from round zero [the 1998 sector opening]," Petrobras exploration and production manager Paulo Mendonça told BNamericas.

The company's 2004-2010 strategic plan earmarks US$26.2bn for E&P and Petrobras plans to continue to develop its known areas as it strives to meet in 2005 or 2006 the 1.8 million barrels a day (mb/d) of oil needed for self-sufficiency.

Earmarked for the most attention is developing production in the northern region of the Campos basin, more specifically a collection of fields known as Parque das Baleias, or the Whale Park, as well as the development of the light oil finds in the Espírito Santo and Sergipe/Alagoas basins, and the natural gas fields in the southern Santos basin.

Petrobras has found 419 billion cubic meters (bcm) of natural gas in the southern Santos basin, the company told BNamericas in a written statement.

The plans are in line with declarations of commercial feasibility made to the ANP since 1999. These exclude most of the Campos basin finds, which were made before the creation of the ANP in 1997.

"The company is consolidating its position where it knows it has oil, it's an international trend," said Marcos Paulo Pereira, an energy analyst at Socopa brokerage. "When a company reaches a certain level of production, it reduces investment in frontier areas." The focus on developing known reserves has seen Petrobras increase domestic production to some 1.6mb/d, which will climb further as the company brings more oil-producing units on line to produce at depths of over 1,000 meters in the Campos basin, which provides some 80% of its output. Other fields to be developed include Golfinho in the Espírito Santo basin, Piranema in Sergipe Alagoas and Mexilhão in the Santos basin. And these are probably where the company will also focus its exploration activities.

"The company is exploring around the regions it knows there is oil," said Guiseppe Bacoccoli, geologist, consultant and researcher at the federal university of Rio de Janeiro. "But this will never lead to large finds, although the company's reserves may rise as it turns estimated reserves into proven reserves," he told BNamericas.

Petrobras' reserves stand at some 12.6 billion barrels of oil equivalent (bboe), and are expected to rise at the next reassessment. "There is no real concern over the rhythm of new discoveries in the short term since Petrobras has enough reserves to last for many years," said Pereira. "But in the medium term it could be a concern."

A cause for concern is that studies show self sufficiency could be short-lived if consumption rises in line with the anticipated 4% annual growth of GDP. A study presented at the recent Rio de Janeiro Oil & Gas seminar by University of São Paulo researchers Carlos Andrade, Denislon Ferreira and Edmilson dos Santos showed that oil production will peak in 2010 and then start declining. To avoid this, Brazil would have to open up new exploratory frontiers.

"Oil exploration comes in cycles and the last big cycle ended in 2001 with the Santos and Espirito Santo finds," Bacoccoli said. "So you need to open up new fronts all the time to raise the chances of starting a new cycle." Among promising new frontiers, Bacoccoli named most of the inland unexplored basins and the little known basins of Foz do Amazonas in the country's north, Pará/Maranhão, Camamu/Almada on the northeastern coast and Pelotas in the extreme south.

These areas were less contested in licensing round six in August 2004, mainly because of the lack of basic geological and geophysical knowledge about them. More studies would have reduced risk for potential investors. But basic studies are not being carried out because the ANP does not have enough money. "This is a structural problem that affects ANP's supervision and research activities and a solution has to be found," Pereira said. Not only has the ANP spent 50% or less of its annual budget since its creation seven years ago, but the federal government also keeps most of the sector levies raised from production activities to meet fiscal targets. "This is money that by law should be reinvested in the oil industry, [and] although Petrobras is unlikely to complain because it is a federal company, the oil sector as a whole should," said Bacoccoli.

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