Petrobras to Start Long-Term Test at Tupi in March 2009

RIO DE JANEIRO, (Dow Jones Newswires), May 13, 2008

Brazil's state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, will start a long-term production test at its giant Tupi field in March 2009, Chief Financial Officer Almir Barbassa said in a conference call Tuesday.

The test will last two to three months, during which the company will produce 30,000 barrels a day from the field from three wells, Barbassa said.

The company already has a platform available for the long-term test, and it is already searching for a rig for a pilot production of 100,000 barrels of oil and 4 million cubic meters of gas a day at the field slated to start in December 2010, he added.

Petrobras has said that Tupi could eventually reach an output peak of up to 1 million barrels of crude a day.

In November, Petrobras said it estimated recoverable reserves at Tupi of up to 8 billion barrels of oil equivalent, or BOE.

Petrobras' locally traded shares rose 2.1% to 46.71 reals ($28.10) in Sao Paulo at 1448 GMT, while its American Depositary Recepits rose $1.26 to $66.96 in New York.

The oil firm has contracted three new exploration rigs for ultra-deep waters of more than 3,000 meters, Barbassa said.

Two of them will be available for the Tupi field as of 2009, and a third will be available as of 2010 for drilling at the promising Carioca find.

Last month, the head of Brazil's national petroleum agency said the area around the Carioca find in the Santos Basin could contain 33 billion BOE, making it the world's third-biggest oil discovery ever.

Petrobras has a 45% operating stake in the BM-S-9 block. BG Group PLC (BRGYY) holds 30% and Repsol YPF SA (REP) holds 25%.

In April, Chief Executive Sergio Gabrielli said he expected to have a clearer idea of the size of Carioca find in about two or three months.

Barbassa, however, said the company will only be able to evaluate the drilling of a second well it is currently performing in the BM-S-9 block then, and won't necessarily be able to give an official reserve estimate for the area.

"We don't have a date for (a reserve announcement). It depends on a series of factors that we can't control," Barbassa said.

"The area is very extended, you have to drill in various positions of the structure in order to find referentials such as where the water meets the oil - as that helps to better calculate volumes," he said.

Petrobras has so far drilled one well at Carioca and performed seismic studies.

Tupi and Carioca lie in the Santos Basin's pre-salt area. Oil found there is at a water depth of more than 2,000 meters, and a further 5,000 meters below sand, rocks and salt, making production challenging and expensive.

Barbassa couldn't say how high he expected production costs in the pre-salt area might be.

After the long-term test at Tupi next year, Petrobras will have a better idea of production costs, he added.

But costs area already going down as the company gets to know the challenging area better.

The company's first well drilled in the pre-salt area still cost $240 million, he said. Costs by now have come down to about $60 million to $70 million in the area, Barbassa said.

So far, Petrobras has spent more than $1 billion on pre-salt drilling.

"We're trying to reduce costs. The shorter we use a drilling rig, the cheaper it gets," Barbassa said.

Drilling rigs with a capacity to explore for oil in ultra-deep waters such as in Brazil's pre-salt play currently cost about $600,000 a day to lease, he added.

Petrobras is currently also drilling a further well at its Jupiter field in the BM-S-24 block in the Santos Basin, where it announced a giant gas discovery in January.

The company is also drilling in the BM-S-8 block, which lies adjacent to the BM-S-9 block of the Carioca find.

Petrobras expects to announce an updated five-year business in September that incorporates investments for the pre-salt area, Barbassa said.

Copyright (c) 2008 Dow Jones & Company, Inc.

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