Brazil's oil snafu - much ado about something big

By Andrei Khalip - Analysis

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.