Thursday, May 13, 2010

Brazil makes its biggest oil find in three years

* Energy regulator says finds 4.5 billion in offshore area

* Largest discovery since massive subsalt Tupi area

* Reserves likely to be used for Petrobras capital plan (Recasts, adds details, background, link)

By Brian Ellsworth and Denise Luna

RIO DE JANEIRO, (Reuters) - Brazil on Wednesday announced its largest oil discovery in nearly three years in its vast deepwater fields, boosting the South American nation's potential as a major energy producer.

The estimated 4.5 billion barrel find, if confirmed, could rival some of the world's largest discoveries in recent years such as those in Kazakhstan and Iraq and will likely draw further oil company attention to Brazil's offshore waters.

"It seems to be one of the wells with greatest potential ever drilled in the country," said Haroldo Lima, director general of Brazil's ANP energy regulator that announced the discovery.

The ANP hired Petrobras to drill the 2-ANP-1-RJS will in the Santos Basin, which is also home to the 5-8 billion barrel Tupi find. It found a column of 272 meters (890 feet) of oil in the area 195 kilometers (120 miles) from the coast of Brazil in the Santos Basin.

The oil is likely to be used in an oil-for-shares capitalization in which state oil company Petrobras (PETR4.SA)(PBR.N) will give the government shares in exchange for rights to develop 5 billion barrels of offshore reserves.

Brazil has became a new frontier for global oil exploration since its 2007 discovery of the massive Tupi field in the offshore subsalt cluster, drawing the attention of global energy giants.

Environmental dangers associated with offshore drilling face growing scrutiny after BP's massive spill in the Gulf of Mexico. Still, analysts expect increased global reliance on offshore reserves.

President Luiz Inacio Lula da Silva has described the massive subsalt reserves as "a gift from God" and last year launched a legislative overhaul that would boost state control over the sector and make Petrobras the sole operator of new projects.

Petrobras shares were up 0.95 percent to 29.90 reais in afternoon trading, though most of those gains came before the ANP announcement.

The ANP last year hired Petrobras to carry out exploratory drilling in unlicensed areas adjacent to the Iara field, which is believed to hold some 3-4 billion barrels.

The agency produced a volume estimate less than six months after having started to drill for oil, compared to around five years between the time Petrobras began drilling in Tupi and its announcement of reserves volumes.

This may be because Petrobras has greater available seismic data for this discovery, though some skeptics say Petrobras has sped up the process to finish the capitalization plan.

"They are managing this politically, they are not managing this from the vantage point of long-term value creation," said independent energy analyst Francois Moreau.

Congress must still approve the capitalization plan, which is crucial to Petrobras' (PETR4.SA)(PBR.N) push to develop billions of barrels of offshore reserves in the subsalt area and which could provide the company with up to $25 billion needed for its 2010 investment budget.

Petrobras' exploratory success has helped make it a leader in the development of deepwater oil projects. The complex subsalt projects require companies to drill deep below the ocean floor through a thick layer of salt.

The company is currently producing around 18,000 barrels per day (bpd) of oil from the Tupi area as part of an extended test which is expected to jump to 100,000 bpd by the end of this year.

Deepwater projects are expected to account for an increasing share of total oil production around the world as production in conventional fields begins to decline and global energy demand grows.

(Additional reporting by Reese Ewing; Editing by Stuart Grudgings and David Gregorio)

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