Wednesday, June 23, 2010

Deepwater oil drilling under scrutiny as Brazil's Petrobas delays flotation

Brazil's national oil company Petrobras has surprised investors by postponing its $25bn (£16.86bn) stock market flotation, potentially delaying its efforts to extract oil from deepwater reserves off the coast.

The Petrobras stock offering, which had been scheduled for July, will now be delayed by two months until September. It blamed the move on Brazil's ANP energy regulator, which needs more time to assess the value of oil reserves which lie deep below the seabed off the coast of Rio de Janeiro.

The flotation of Petrobras is a key part of the country's efforts to extract huge quantities of high-quality oil which lie around 280 miles offshore. These reserves are trapped around 4,000 metres under the sea floor, beneath layers of salt and rock. There is also around 2,000 metres of seawater between the seabed and the surface, further complicating the drilling process.

Under Petrobras's flotation plan, the government would sell the company the right to extract 5bn barrels of oil in reserves currently under the state's control, and would receive an equal share of the listed company in return.

The BP question

Analysts believe that the delay is partly due to the ongoing Deepwater Horizon disaster in the Gulf of Mexico, where BP's Macondo well has been leaking for two months. The huge environmental and economic damage caused by this spill means oil companies could face tougher safety measures when they attempt to extract oil at such depths. This disaster also potentially makes Brazil's reserves even more valuable, as America and the oil industry lock horns over President Obama's attempt to ban new deepwater drilling in the Gulf.

The first of Brazil's massive pre-salt oil fields, Tupi, was discovered in 2007. It contains between 5bn and 8bn barrels of oil, triggering fevered speculation that the country had suddenly become a major player in the world energy market. Other fields have since been discovered, pushing up the total estimates size of the reserves to around 30bn barrels – roughly the entire world oil consumption in 2010.

But environmental activists are deeply concerned that extracting the oil will be dangerous, as it is even deeper than BP's Macondo field.

Last week the Global Renewable Fuels Alliance (GRFA) named Brazil's Tupi field as one of the 10 most dangerous offshore sites in the world.

"Drilling through the salt layer will create significant risks," the GRFA warned.

BP's failure to plug the Deepwater Horizon leak has shown that the oil industry is ill-prepared to fight a spill at such depths. Its under-fire chief executive Tony Hayward has admitted that the "blowout preventer", the piece of equipment that is relied on to plug a well if needed, is "not as failsafe as we'd believed it to be".

BP itself has a stake in the Brazil oil fields, having paid $7bn for 10 exploration blocks back in March. This could be one of the assets put up for sale, though, as it tries to cover the costs of the Deepwater disaster.

The Brazilian government is committed to exploiting the pre-salt oil fields. President Luiz InĂ¡cio Lula da Silva wants to use the reserves to cut poverty in the country and improve its education system.

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