Petrobras Delays Some Subsalt Tests Due to Equipment

UNCLAS RIO DE JANEIRO 000135

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC, EB/ESC
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOE FOR CAROLYN GAY AND RHEA DAVIS

E.O. 12958: N/A
TAGS: ENRG EPET EIND EINV BR
SUBJECT: Petrobras Delays Some Subsalt Tests Due to Equipment
Shortage

REF: A) RIO DE JANEIRO 91, B) RIO DE JANEIRO 35, C) 07 SAO PAULO
0953


1. Summary. A shortage of drilling rigs and looming relinquishment
deadlines have made Brazilian oil company Petrobras delay tests on
potentially huge subsalt finds like Carioca and move the rigs to
other blocks. Petrobras CEO Sergio Gabrielli announced in late May
that production evaluation tests would have to wait and expected no
additional information on the Carioca reserve any time soon.
Meanwhile, Petrobras is launching a major program to contract the
construction of deep sea drilling equipment in anticipation of
further exploration and production of subsalt areas. End Summary.

2. In late May, Petrobras CEO Sergio Gabrielli announced that the
company had ceased doing tests on potentially huge subsalt finds
such as the Carioca field in the Santos Basin (Ref A) in order to
fulfill other exploration requirements and avoid having to
relinquish areas. Under Brazilian regulations, if no oil is found
in blocks under concessions by a certain deadline, operators have to
return parts and then, eventually, the whole of the area to the
government. By the end of 2010, Petrobras has to present the
National Petroleum Agency (ANP) with a complete evaluation and
production plan for all the pre-salt blocks it currently leases.
Petrobras Exploration and Production Director Guilherme Estrella has
publicly expressed concerns that the company is "running against
time."
TUPI FIRST, THEN OTHER PRE-SALT AREAS

3. Petrobras has only made production evaluation tests at the Tupi
subsalt field, where it made a recoverable reserve estimate last
November of between 5-8 billion barrels. Two more wells will be
drilled there and a long-term production test will start on Tupi in
March 2009 to produce 10,000-20,000 barrels per day. Some
geologists say that the Carioca subsalt field and three adjacent
blocks may have probable reserves of over 30 billion barrels. This
theory has yet to be confirmed. So far, Petrobras has been quiet
saying only that it is a possibility that requires more studies.

4. Studies not directly related to exploration and production at
Tupi appear to be temporarily on hold while Petrobras takes stock of
the resources that it will need to explore the new subsalt frontier.
The "Bem-te-vi" field (BMS-8 block),where Petrobras announced a
light oil find earlier in May, will also have to wait for new
equipment to get more information about the crude accumulation. The
rig from there has been transferred to another subsalt area, known
as Iara.
STRATEGIC PLAN FOR EQUIPMENT

5. With oil prices at record highs, oil exploration equipment is in
short supply and becoming more expensive. Renting a deepwater
drilling rig costs, on average, between $400,000 and $600,000 a day.
So, Petrobras has recently launched its "Fleet Support and Support
Vessel Modernization and Expansion Program," a strategic plan to
contract the construction of 140 new units to support Petrobras'
offshore activities at an estimated total of US$5 billion. This is
the largest vessel contracting plan of its sort ever in Brazil.

6. Specifically for the subsalt area, Petrobras plans to contract
40 drilling ships and platforms to operate in deep and ultra-deep
waters by 2017. Though Petrobras says it prefers that the units be
built in Brazil and has a target of 70-80 percent local content, it
is questionable if the domestic market is ready to