Global Insight Perspective | |
Significance | Petrobras and partners have completed drilling on a well and proved a 3–4-billion-boe discovery in the Iara exploration area, close to the Tupi field. |
Implications | The find could bring total reserves in Block BM-S-11 up to 12 billion boe, doubling the country's current volume of reserves. |
Outlook | The series of recent discoveries in the pre-salt layer are set to transform Brazil's oil sector and convert the country into a major oil producer in the years to come, but the technical challenges of developing these fields mean that it could take some time for the country to fulfil its pre-salt potential. |
The Brazilian state oil company Petrobras has released a statement announcing that a new find in Block BM-S-11, in the ultra-deep pre-salt layer of the Santos Basin, contains 3–4 billion barrels in recoverable light oil and gas reserves. The Iara discovery, first announced in August, is located in the same block as Tupi—a pre-salt discovery announced last year with 5–8 billion boe of reserves (see Brazil: 8 August 2008: Petrobras and Partners Announce New Find in Santos Basinand Brazil: 9 November 2007: Petrobras Announces Large Discovery in Brazil). The country's Minister of Energy and Mines Edison Lobão said separately that the two fields together could raise the country's certified reserves to around 26 billion barrels and that development of the field could begin in two years. Petrobras is the operator of Block BM-S-11 with a 65% stake. Its partners are BG Group (25%) and Galp Energia (10%). The shares of all three companies rose.
Although smaller than Tupi, the discovery of such a large light oilfield with a specific gravity of between 26°API and 30°API is significant, as Brazil's current oil mix is fairly heavy and the country has to import light oil for its refineries. The announcement of reserve figures for the Iara find will also boost expectations of the potential for further oil discoveries in the pre-salt layer. Other pre-salt discoveries that have been announced in recent months in the Santos Basin include Guará, Bem-Te-Vi, Carioca, and Júpiter, although suggestions that some of the deposits could be interconnected into one mega field have yet to be proved.
Outlook and Implications
Iara is the second-largest field announced to date in the pre-salt layer and the confirmation of 3–4 billion boe in new reserves will help maintain strong interest in Brazil's production potential. The announcement of the Tupi field last year had already prompted predictions that Brazil is set to become one of the top 10 oil producers in the world in the coming years.
Nonetheless the discovery of a new exploration frontier in Brazil poses considerable technical challenges, with the development of the new reserves also likely to prove considerably more expensive than existing projects. The anticipated oil boom has also set a new series of challenges for the government, with the past few weeks seeing mounting debate over how the country can extract maximum benefit from future oil production. Brazil's President Luiz Inácio Lula da Silva has called for the windfall to be spent on poverty alleviation and education. Meanwhile the Ministry of Energy and Mines has announced plans for new refineries whose production will be destined exclusively for export markets in a bid to add value to future oil production. At the same time an inter-ministerial committee has been set up to look into possible changes in regulations to maximise the state's share of revenues, including a proposal to create a new state oil company to manage reserves in the pre-salt layer (see Brazil: 1 July 2008: Minister Supports Creation of New State Energy Company; Petrobras Opposed). These discussions have created some uncertainty for investors but the outlook for Brazil's oil sector remains promising.