Brazil Petrobras: Mexilhao Project to Cost $1.9b

RIO DE JANEIRO, Nov 17, 2005 (Dow Jones Commodities News via Comtex)

A project to develop massive gas reserves at the Mexilhao field in the Santos Basin off the coast of Sao Paulo state will cost $1.9 billion, Francisco Nepomuceno, Exploration and Production Manager at Brazil's state-run oil company Petroleo Brasileiro SA (PBR), or Petrobras, said Thursday, the Estado newswire reported.

Petrobras is currently negotiating with Spanish-Argentine energy company Repsol-YPF SA (REP) over how to develop Mexilhao. The two companies so far said they have a confidentiality agreement before making any detailed announcement about the Mexilhao project.

A press spokeswoman at Petrobras couldn't immediately confirm the information, nor could she say why Nepomuceno had now provided details about the financial aspects of the project.

Nepomuceno also said that a natural gas processing unit for gas from Mexilhao will be built in Caraguatatuba in northern Sao Paulo state and cost $300 million. That sum is included in the overall investment cost for the Mexilhao project.

The gas from the processing unit will flow through a pipeline to Taubate, also in Sao Paulo state, where it will be connected to a pipeline from Campinas near Sao Paulo city to Rio de Janeiro, Nepomuceno is quoted as saying.

Production from Mexilhao will start in July of 2008 from a fixed platform, Nepomuceno said.

In August Petrobras had said that it plans an initial production of 12 million cubic meters a day in 2008 from Mexilhao and adjacent areas, with output reaching 15 mcm/d by 2010.

On top of that, the company plans to produce 18 mcm/d from gas fields in the BS-500 block, also in the Santos Basin, but in deeper waters, Nepomuceno said. Petrobras previously had put the planned production from the BS-500 block at only 15 mcm/d.

"The BS-500 is a big project that should need two or three platforms," Nepomuceno was quoted as saying.

Until 2010, the company plans to drill 74 exploratory blocks in the basin and hopes to confirm the existence of 419 billion cubic meters of gas there, said Nepomuceno.

Petrobras discovered the Mexilhao field in 2003 and puts its proven reserves at 72 billion cubic meters of gas.

Next to the Mexilhao field and the BS-500 block, Petrobras also is studying ways to produce gas from three other areas in the Santos Basin, some of them in very deep waters.

Developing the deep-water areas would be a great technological challenge, Nepomuceno said.

Petrobras also is trying to develop gas-to-liquids technologies that would allow it to produce diesel fuel from natural gas, he added.

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