Petrobras Confident of Oil, Gas Finds in Colombia Sea

BOGOTA Oct 5, 2006 (Dow Jones Newswires)

Brazil's state-owned company Petroleo Brasileiro SA (PBR), or Petrobras, is so optimistic that there is oil and gas below the Colombian portion of the Caribbean sea that it plans to expand its operations there and regain rights on an area it relinquished to the government earlier this year.

Dirceu Abrahao, the chief executive of Petrobras' Colombian unit, told Dow Jones Newswires in an interview that the company will participate in the auction of ten oil blocks scheduled in December.

The sale will include the Tayrona block, which Petrobras and its partners had to hand back to the government in February under terms of their original exploration contract.

"We see a lot of features that could indicate that (the Tayrona block) could have oil, but there is more potential for gas," Abrahao told Dow Jones Newswires in an interview. "That's why we are interested in reacquiring the rights on that block," he added.

In May 2004, Petrobras teamed up with Exxon Mobil Corp (XOM) and Colombia's state-owned company Ecopetrol to explore Tayrona, an area of more than 4.4 million hectares off Colombia's northern coast in the Caribbean waters.

Armando Zamora, the head of the Colombian hydrocarbon-licensing agency, or ANH, in July identified at least eight companies interested in participating in the auction, including Norway's Statoil ASA (STO), Italy's Italian ENI Sp A (E) and Russian gas giant Gazprom OAO (GSPBEX.RS).

Total investment in the ten blocks may reach $500 million, according to Zamora.

In the meantime, Petrobras and its partners are moving forward with exploration activities in the parts of Tayrona they still control.

According to Abrahao, seismic studies have identified the presence of hydrocarbons but the companies will only be able to drill their first well - an essential part of confirming a discovery - in the fourth quarter of 2007, because of a shortage of drilling rigs.

"We are ready to begin drilling, but because of high oil prices it's been very difficult, almost impossible, to get a rig," Abrahao said.

The companies involved in Tayrona are expected to invest between $50 million and $60 million to drill the first well, Abrahao said.

For 2006, Petrobras expects investments in Colombia to reach a total of $130 million, four times as much as in 2005. The largest chunk of the investment - $80 million - will go to exploration activities, while the remainder will go to production and distribution projects.

Abrahao said that the firm hasn't yet approved next year's budget for Colombia, "but I can anticipate it will certainly be much higher than this year."

The firm is one the most active oil companies in the country, with 16 exploration and production contracts, and is intent on expanding activities in both areas.

"The contracts in Colombia became more attractive in the last few years. Better security conditions and a more appealing regulatory framework have allowed us to better sell Colombian projects to our headquarters," he said.

Sergio Possato, president of Brazilian oil consultancy firm Stratageo, said that while some countries in the region, such as Bolivia, are scaring away foreign investors in the name of nationalism, Petrobras likes Colombia because of its political stability and because of the prospect of rich, unexplored oil deposits.

"Petrobras has been very aggressive as 80% of Colombia's basins are unexplored. It also likes Colombia because of the political stability," said Possato, speaking in a separate interview from his office in Rio de Janeiro.

Like Petrobras, oil majors have been lured to Colombia by new investment incentives approved by the government. Until 2004, multinationals were tied to association contracts with Ecopetrol, whose take was 70%. But for the past two years, the government has been granting oil licenses directly to private companies.

Elsewhere in Colombia, Petrobras and Danish partner Maersk Sealand (MAS.YY) are investing $70 million to drill a well on their Tierra Negra property in the eastern Llanos foothills. Petrobras is operator and responsible for 60% of the investments on the block, which has estimated reserves of 700 million barrels of oil.

"We started drilling this well in August. It is a very difficult well because we have to drill 19,000 feet deep to know whether there is oil," said Abrahao.

Separately, Petrobras, Canada's Nexen Inc (NXY) and Ecopetrol are considering a $50 million investment for 2007 to drill 35 new wells and maintain production from the aging Guando field at 35,000 barrels per day.

"I hope to finalize this decision by the end of this year," Abrahao said.

Guando is Colombia's last major oil field discovery and is located in the inland state of Tolima, 80 miles west of Bogota. Found in 2000, estimated reserves now stand at around 200 million barrels of oil.

Meanwhile, on the distribution side, Petrobras is upgrading the 38 gas stations it bought from Royal Dutch Shell PLC (RDSB.LN) in late 2005.

According to Possato, Petrobras' investment in Colombia is in line with its investment levels in other countries, but if they discover more oil, he believes Petrobras wouldn't hesitate to spend more in Colombia "than in any other country in the world."

While the company is expanding its activities in oil exploration and production in Colombia, it turned down the possibility to invest in the natural gas transportation business.

Abrahao said his company won't bid for the natural gas company Empresa Colombiana de Gas SA, or Ecogas, scheduled to be sold by the government in an auction on Nov. 24.

Copyright (c) 2006 Dow Jones & Company, Inc.

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