Brazilian Oil Finds May Cost a Record $240 Billion to Develop
By Joe Carroll
June 5 (Bloomberg) -- Brazil's oil discoveries, including the Western Hemisphere's largest in three decades, may cost $100 billion more to develop than the industry's most costly field.
The Tupi deposit and nearby offshore prospects probably will cost $240 billion to exploit, said Peter Wells, director of U.K. research firm Neftex Petroleum Consultants Ltd. and a former Royal Dutch Shell Plc exploration manager. The total exceeds the $136 billion estimate for Kazakhstan's Kashagan field, led by Eni SpA, and would be enough to fund the U.S. space program for 14 years.
Brazil's state-controlled Petroleo Brasileiro SA will need to enlist international producers such as Exxon Mobil Corp. to raise financing for the platforms and pipelines required to reach crude trapped beneath six miles (10 kilometers) of water and rock, Wells said in a telephone interview. The prospects may hold $6 trillion of petroleum and make Brazil one of the world's 10 largest oil producers.
``This oil is going to be difficult to get out of the ground and it will cost a lot,'' said Wells, who also was a chief negotiator for BP Plc in Azerbaijan. Petroleo Brasileiro ``will need the capital expertise only found with the world's largest, most experienced oil companies.''
Tupi, the biggest discovery in the Americas since 1976, will start pumping in April 2009, Chief Executive Officer Jose Sergio Gabrielli said in an interview last month. Gabrielli declined to estimate development costs for Tupi and adjacent fields, and a spokesman said yesterday that the company wouldn't comment on Wells's projection.
Tupi and Friends
The $240 billion estimate assumes there are four to seven similar prospects nearby and includes costs to drill wells, lay pipelines and build production platforms over a period of about 20 years, Wells said.
Tupi alone could cost $100 billion, said Wells, part of a Neftex team doing a six-year study to map all of the world's petroleum basins.
Cambridge Energy Research Associates, the Cambridge, Massachusetts-based consulting firm headed by Daniel Yergin, said the Tupi-area fields will cost $200 billion to $240 billion. Costs are rising as producers compete for labor and equipment with oil prices above $120 a barrel. Deepwater drilling rigs are renting for more than $600,000 a day in some cases.
The Brazil fields may hold as much as 50 billion barrels of crude, Wells said. That's more than the reserves of Libya.
Rigs Ordered
Petrobras, as Rio de Janeiro-based Petroleo Brasileiro is known, already has leased about 80 percent of the world's deepest-drilling offshore rigs and plans to hire 14,000 engineers, geologists and drillers within the next three years, Gabrielli said.
The company announced plans last month to place orders with shipbuilders for 40 new drilling rigs and production platforms that will cost about $30 billion.
``Petrobras will probably face stiff challenges in this endeavor, as there are significant hurdles to overcome in terms of acquiring basic materials, people and rig equipment,'' said Stephen Ellis, an analyst at Morningstar Inc. in Chicago.
Petrobras will revise its $22.5 billion-a-year capital budget because it was drafted before engineers realized the size of Tupi's recoverable reserves, which may be equivalent to 8 billion barrels of oil, Gabrielli said. At $240 billion, the price tag would be more than the annual economic output of Thailand, Ireland and Malaysia.
20% Gas
The Brazilian discoveries contain about twice as much natural gas in each barrel of crude as reservoirs in the Gulf of Mexico and West Africa, increasing the complexity and expense of the projects, Wells said.
Tupi is about 80 percent crude and 20 percent gas, said Wells, a University of Exeter-trained geologist. For each barrel of oil, there's 700 to 1,000 cubic feet of gas.
``Gas is an important cost consideration because they have to decide whether to reinject it back into the reservoir or construct a rather large pipeline to take it to another destination where it can be used,'' said Candida Scott, a senior director at Cambridge Energy Research Associates.
The high wax content of Tupi's crude and the presence of carbon dioxide, which can damage pipes, also may raise costs, Wells said.
Reading, U.K.-based BG Group Plc, which owns 25 percent stakes in Tupi and an offshore field known as Parati, and 30 percent of Carioca, hasn't provided cost projections. Carioca, which neighbors Tupi, may hold 33 billion barrels of crude, a Brazilian oil regulator said in April.
``It's really simply too early to make an estimate of costs,'' BG spokeswoman Jo Thethi said.
Irving, Texas-based Exxon Mobil plans to begin drilling its first exploratory well off Brazil's coast in the third quarter.
``It's a very large area, very difficult to image and it's going to cost a lot of money to develop,'' Chief Executive Officer Rex Tillerson told reporters after the company's May 28 shareholders meeting in Dallas
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