Petrobras: New Santos Oil Production May Start in 10 Years

RIO DE JANEIRO Oct 18, 2006 (Dow Jones Newswires) It may take a decade before Brazil's state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, may start output at a recently discovered light oil area in ultra-deep waters in the Santos Basin, the Estado newswire said Wednesday.

"We work to start production at the middle of the next decade," Guilherme Estrella, Petrobras' Exploration and Production Director, is quoted as saying, adding that further analysis of the area was necessary.

Petrobras on Oct. 4 said tests at the 1-RJS-628 exploration well in the Santos-Basin BM-S-11 exploration block where a discovery was announced in July, showed the existence of a "significant volume" of 30 degrees API crude.

Production tests at the well showed a flow of 4,900 barrels of oil a day and of 150,000 cubic meters of natural gas a day, Petrobras then said.

Petrobras has a 65% stake in the BM-S-11 exploration block. U.K. energy company BG Group PLC (BRG) holds 25% in the block, and Petroleos de Portugal, or Petrogal, the remaining 10%.

The block lies at a water depth of 2,140 meters. The oil deposit is considered a new frontier as it lies under a 2,000-meter-thick salt layer that itself lies under 3,000 to 4,000 meters of sand and rocks below the seabed.

Due to the extremely deep location of the oil deposits, more discoveries are necessary to justify the expected very expensive production costs, Estrella added.

"You can't develop small accumulations (there)," Estrella said.

Brazilian media have speculated a second oil province the size of the Campos Basin could lie below the Santos salt layer. The Campos Basin currently produces 80% of Brazil's oil production of close to 1.8 million b/d.

Oil analysts have said the new discovery is very important, but a determining factor for a possible production will be how high the costs really are to pump oil from the challenging depths of the Santos Basin.

The BM-S-11 exploration block lies 250 kilometers off the coast of Rio de Janeiro.

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

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