Brazil's oil snafu - much ado about something big

RIO DE JANEIRO (Reuters) - Brazil's oil market regulator may have jumped the gun by providing a huge new oil reserve estimate with little data to back it up, but analysts have little doubt about the country's oil potential measured in billions of barrels.

Just how many billion remains to be seen, and the discovery in the subsalt cluster at great depths represents major technological and cost challenges, they said.

But in any case, a big new find under evaluation that follows last year's announcement of a giant subsalt field known as Tupi boosts Brazil's prospects as a major world oil province. It also reinforces arguments of those in the government calling for a higher take from oil projects.

The National Petroleum Agency has distanced itself from a statement made on Monday by its chief, Haroldo Lima, who put Carioca field reserves at 33 billion barrels of oil equivalent, citing data obtained informally from Brazil's state-run energy company Petrobras (PETR4.SA)(PBR.N).

The agency said the data was in the public domain after circulating in the media at least since February.

Petrobras, which operates the project shared with partners BG Group (BG.L) and Repsol (REP.MC), said more drilling and studies were needed to assess the find, but at no point did any of the companies deny the existence of similar estimates.

Stocks of the two foreign companies jumped on Tuesday despite the ANP's caveats. Petrobras, which soared more than 5 percent on Monday, added another 1 percent.

QUESTIONS REMAIN

Matthew Shaw, senior energy analyst for Latin America at Wood Mackenzie consultants in Scotland, urged caution. He said too many questions remained about Carioca, which he thinks is unlikely to contain that much crude.

But he said the industry was excited.

"There's obviously a multibillion-barrel potential here, which is very significant for Brazil and the world oil market. There is a great deal of excitement and interest, but there are also a lot of questions that need to be answered," he said.

Mauro Andrade, an oil analyst with Deloitte Touche Tohmatsu consultancy in Rio de Janeiro, said "there is no smoke without fire" and the Carioca find inspired a lot of optimism.

"There is one well drilled, another being spudded and plenty of seismic data which are now so more precise than a few years ago. I think they do have a preliminary evaluation, which may not be the best in the world, but it's there," he said.

"Somebody put Haroldo Lima there, there is certainly something behind it. We already had respected banks like UBS talking about that find, estimating that it's bigger than Tupi. BG, for example, has never denied those estimates," he added.

Analysts say the projection is most likely to be for possible or in-place reserves rather than recoverable, which may slash the recoverable number by two-thirds or so. That would still make Carioca what is called in the oil industry a "supergiant," with more than 5 billion barrels of crude.

OPTIMISM

Andrade said the find may stoke fire under an ongoing debate about boosting the government's take in oil projects and a possible change in the way Brazil offers oil exploration and production concessions. Brazil now auctions such licenses annually in an open, market-friendly process.

Some analysts suggested Lima's announcement may be part of a coordinated effort within the government's nationalist wing, which is pushing for faster changes to secure high-potential reserves for Brazil alone, limiting foreign participation.

"Lima defends changes in the legislation based on new discoveries. It's his line and there may be other forces working in the same direction," said Carlos Lopes, a political analyst with SantaFe Ideias in Brasilia.

He said there was "lots of optimism in the Brazilian political sector" with the oil prospects after the Tupi find last year, as the petroleum is likely to make South America's largest country and economy more than just a regional leader.

"It certainly would mean a change in references in the long run, giving Brazil more global scale and clout," he said.

Still, few believe Brazil will turn into a major oil exporter any time soon and Lopes said proposals like joining the OPEC cartel were not considered serious.

Added Wood Mackenzie's Shaw: "It is going to be a very challenging development. It is not a Saudi Arabia find where you just plug into it and start producing. It will be very expensive and it will take a long time. A lack of drilling rigs on the world market is only one of the challenges," he said.

(Additional reporting by Richard Valdmanis in New York, editing by Matthew Lewis)