Petrobras to Quit Huge Brazil Oil Field

By MarEx 2014-01-24 10:00:00

Brazil's state-owned oil company, Petrobras, and its partners plan to abandon the major Bem-Te-Vi offshore oil prospect to concentrate investment on a larger discovery nearby, a source with direct knowledge of the decision told Reuters.

Located in the BM-S-8 block in the Santos Basin south of Rio, Bem-Te-Vi is being returned to Brazil's oil regulator, the ANP, along with at least part of the Biguá prospect, in the same block. The partners in BM-S-8 plan to focus instead on another prospect of the block, Carcará, a discovery many believe to be one of the largest ever in Brazil.

"The Carcará discovery is a good one and efforts in the block will be concentrated there," the source told Reuters on the condition anonymity. "Bem-Te-Vi and Biguá don't represent as much to the partners."

Returning the discovery, though means Petrobras and its partners, Brazil's QGEP Participações SA, Brazil'sBarra Energia and Portugal's Galp Energia SGPS , will get nothing for the millions of dollars they have spent drilling and evaluating the area.

And while the return of Bem-Te-Vi will free up cash to develop the recent Carcará find nearby, failure to sell the area to another company or group prevents a cash-strapped Petrobras and partners from cutting losses and raising cash to develop Carcará, industry experts said. It may also force Petrobras and partners to take a charge against earnings.

If Bem-Te-Vi is as large as Petrobras officials suggested in 2008, Brazil's government will forgo billions of dollars in royalties, taxes, and jobs that Bem-Te-Vi's oil was expected to provide.

"This doesn't make any sense unless somebody screwed up or Bem-Te-Vi is a dud," said Cleveland Jones a geologist with the Brazilian Petroleum Institute at the State University of Rio de Janeiro.

"Sure, Petrobras doesn't have money to develop it, but then you sell the area, get some cash and in the worst case cut your losses," he added. "I don't see how anybody wins here, not Petrobras, not the government."

Located in the BM-S-8 block, it was one of the first giant "subsalt" oil finds that kicked off a Brazilian oil boom in 2007 and 2008.

While Petrobras never announced how much oil Bem-Te-Vi contained, it was part of a group of subsalt "super giant" prospects, including Jupiter, Guara and Iara that contained an estimated 6 billion barrels of oil, nearly enough to supply all U.S. needs for 11 months.

The subsalt refers to an area in Brazil's Santos and Campos basins where large oil discoveries have been made deep beneath the seafloor under a layer of salt.

A dud though, may be exactly what Bem-Ti-Vi is, an industry source with direct knowledge of the block told Reuters. Early drilling suggested the prospect contained large, possibly billions of barrels of oil. The government and Petrobras trumpeted the discovery as one of a galaxy of fields that would transform Brazil into a rich, developed nation.

The consortium though, believed making money from the prospect would be hard and did not even try to sell it, the industry source said.

"After the initial drilling, Bem-Te-Vi never amounted to much, even Biguá was less bad," the source, who only spoke on condition of anonymity said. "Returning it made sense its normal."

The former Petrobras chief executive of the time, Jose Sergio Gabrielli, repeatedly described the subsalt as nearly risk-free exploration and the reputation of the oil producing potential of the geological formation has won massive billion dollar, upfront fees from oil companies bidding to drill into them.

In September, ANP approved the return of Bem-Te-Vi along with an expansion of the "ring fence" around the Carcará prospect to include a small portion of Bem-Te-Vi as part of the block's Discovery Evaluation Plan, according to unreleased documents shown to Reuters, which Petrobras confirmed on Thursday.

The expanded ring fence protects a larger area of the discovery for future development. A ring-fence is the outside edge of the reservoir that an oil company plans to develop.

Petrobras said it also proposed the return of part of the lesser-known Biguá field, which is also in the BM-S-8 block but asked for an extension until March to decide whether it would return the rest of the field.

Officials at QGEP and Barra Energia were not available for comment. Galp officials could not be reached for comment.

Petrobras, owns 66 percent of BM-S-8 and is the operator. Brazil's QGEP Participações SA and Barra Energia own 10 percent each and Portugal's Galp Energia SGPS, in partnership with China's Sincopec owns 14 percent. 

By Sabrina Lorenzi and Jeb Blount (C) 2014.