Petrobras Outlines Exploration Strategy

Petrobras announced an initiative to boost Brazil's proven crude reserves by 4.9 billion barrels by 2005, mainly via extensive drilling in areas with probable deposits. Jose Coutinho, Petrobras exploration and production director, said that after years of successful "wildcat" well drilling in areas not known to be productive, the company would now move on to drilling a large number of evaluation wells there. "In the past few years, we have prioritized wildcat wells and the strategy gave us an elevated degree of discoveries, with a success rate of 23 percent," he said in a statement. "From now on, we'll be drilling lots of appraisal wells in the discovery areas and we expect new discoveries to be made... so that we appropriate the 2.9 billion barrels from possible and probable reserves by 2005."

Petrobras now plans to end 2005 with 11.7 billion barrels of oil equivalent in proven reserves. That includes 6.8 billion of existing deposits as of now, 2.9 billion in possible and probable reserves, and 2 billion in projected new discoveries.

Coutinho did not elaborate on the new projected discoveries, only saying the total acreage of prospects and high-end technology, especially in deep-sea drilling, allowed the company to expect a high level of success. He explained that Petrobras, which lost its monopoly status in oil exploration and production in 1997, had been using the wildcat spudding strategy in order to retain as many areas as possible in a new competitive environment.

"In 2000 and 2001 we concentrated on retaining the largest possible number of concessions. Now we can make better projections and also think how we keep growing in the subsequent years (after 2005)," Coutinho said.

He said the annual cost of appropriation of possible and probable reserves should be "at least at the same level" as development costs in 2001 of $3.7 billion, when Petrobras added 800 million barrels to proven reserves. Most of the new oil is expected to come from the Roncador and Marlim Sul fields in the Campos basin, which accounts for about 80 percent of all Brazil's output. Roncador crude is lighter than that of Marlim and many other fields.

Coutinho could not say exactly when the company expected the bulk of discoveries. "It takes a lot of time to analyze the data before announcing; we have to do a lot of testing in heavy oil, drill some horizontals wells," he said.

Coutinho said it was too early to say whether the new crude would be lighter on average and whether the discount on Brazilian oil compared with Brent would change over time from the present $2.50 per barrel. "The discount can be lower, but it depends on costs, productivity and profitability -- not only on the crude qualities." The plans do not include Petrobras' overseas operations. Petrobras officials reiterated that the company was looking to buy an oil company, preferably one operating in the Gulf of Mexico, but had no concrete plans yet. Although many foreign and some local firms are drilling for oil in Brazil, Petrobras still remains the country's only producer of crude. It had a record average daily production of 1.48 million barrels in February.

Brazil imports nearly 20 percent of its oil needs, but the country hopes to reach self-sufficiency in oil by 2005 with the help of Petrobras and foreign newcomers, who work in Brazil in partnership with Petrobras and in concessions they won at three annual licensing rounds. Coutinho declined to comment on Petrobras' strategy for the fourth such round that is to take place in June.